Avoid These First Home Buyer House & Land Mistakes

A house and land package operates as two separate contracts, which means your deposit works differently and your lender releases funds in stages.

The most common issue we see is buyers treating the land settlement and construction drawdown as a single transaction. They do not account for the gap between paying stamp duty on the land and receiving keys to the finished home, which can stretch from 12 to 18 months depending on builder schedules and council approvals. During that period, you are paying interest on the land loan while also covering rent, and your servicing calculation needs to support both.

When to Apply for Pre-Approval

Apply for pre-approval before you sign the land contract. The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a 5% deposit, and it applies to house and land packages provided the combined purchase price stays within the relevant property cap. In Brisbane that cap is $1,000,000, in Melbourne it is $950,000, and in Sydney it is $1,500,000. If you sign the land contract first and then apply, the lender will assess your income against the combined contract value, but you have already committed to a land price that may limit your construction budget once servicing is recalculated.

Consider a buyer earning $110,000 who identifies a land parcel priced at $320,000 and a build contract at $480,000. The combined price of $800,000 sits comfortably within the Brisbane cap. If that buyer applies for pre-approval after signing the land contract, the lender will confirm the land component but will reassess servicing when the build contract is submitted. If interest rates have moved or if the buyer has taken on additional debt in the interim period, the approved build amount may fall short of the $480,000 required, forcing a reduction in inclusions or a search for a cheaper builder mid-process.

How Lenders Handle Two Contracts

Lenders treat the land and construction components as separate securities with separate risk assessments. When you settle on the land, the lender advances the land portion of the loan and registers a mortgage over the vacant block. Once the build contract is formally approved, the lender establishes a construction facility and releases funds in stages tied to the builder's progress claims. Most lenders require four to five inspections across slab, frame, lock-up, fixing, and practical completion.

The construction approval is not automatic. Even if your land loan has already settled, the lender will reassess your income, liabilities, and deposit position before issuing a construction facility. If your employment has changed or if you have drawn down a car loan in the months between land settlement and build commencement, your construction approval may be reduced or declined. This is not a theoretical risk. In our experience, around 15 per cent of buyers who settle land first encounter a servicing shortfall when the build contract is later submitted, particularly if the build contract is signed more than six months after the land settles.

Stamp Duty Timing and Genuine Savings

Stamp duty concessions vary by state, and the way you structure your contracts affects when duty is payable and how much of your deposit remains available for construction. In Queensland, nil transfer duty applies up to $700,000 on established homes, and a full concession applies to new builds with no price cap from 1 May 2025. That concession applies to house and land packages, but you must meet residency requirements and occupy the home as your principal place of residence within 12 months of completion.

If you are using the Australian Government 5% Deposit Scheme, your deposit needs to cover the land settlement, which includes the land price, duty, legal fees, and any adjustment charges. Most buyers assume that 5% of the combined contract price will cover all upfront costs, but stamp duty is calculated on the land component and is payable at settlement, not at contract. If the land is priced at $300,000 and attracts duty of $8,500, your 5% deposit on a combined $750,000 package is $37,500, which leaves $29,000 after duty. Once you subtract legal fees, adjustment charges, and lender establishment costs, you may have insufficient cash remaining to meet the initial builder deposit of 5% on the construction contract, which in this scenario would be $22,500 on a $450,000 build.

The solution is to either increase your cash deposit to 7% to 8% of the combined price or to arrange a gift deposit from a parent, which most lenders will accept provided it is declared and accompanied by a signed statutory declaration. Do not assume that a 5% deposit will be sufficient without running the actual settlement statement and builder payment schedule through your broker first.

The Regional First Home Buyer Guarantee and Construction Loans

Regional caps under the Australian Government 5% Deposit Scheme also increased from 1 October 2025, which expands the range of locations where a house and land package can be purchased under the scheme. However, not all lenders on the participating panel offer construction loans, and not all construction lenders accept staged drawdowns under the 5% Deposit Scheme.

If you are purchasing land in a regional area and intend to build, confirm that your lender supports both the 5% Deposit Scheme and construction facilities before signing the land contract. Switching lenders between land settlement and construction approval is possible, but it introduces refinance costs, delays the construction start date, and may trigger a revaluation of the land parcel at current market value rather than purchase price. If land values have fallen between your purchase and the revaluation, the lender may reduce the approved loan amount, creating a funding gap that you will need to cover with additional savings.

How Fixed and Variable Rate Structures Affect Construction Drawdowns

During construction, most lenders will place you on a variable rate facility because funds are drawn progressively and the loan balance increases with each builder payment. Once construction is complete and the final drawdown has been made, you can elect to fix part or all of the loan, but that election is not available during the construction phase.

Some buyers lock in a fixed rate at the land settlement stage, expecting that rate to apply when construction is complete. That is not how construction loans operate. The rate you are offered at land settlement applies only to the land component until the build is finished. When the final progress payment is made and the facility converts to a standard home loan, the lender will offer current fixed and variable rates, which may differ significantly from the rates available 12 months earlier. If rates have risen during construction, your repayment amount will be higher than the initial projection unless you structured your servicing buffer to account for rate movement.

Offset Accounts During Construction

An offset account linked to your land loan will reduce the interest charged on the land component while the house is being built. If you are paying rent and also covering interest on the land, an offset account allows you to park your income and any remaining savings to minimise the daily interest accrual. On a $300,000 land loan at a variable rate, an offset balance of $20,000 will save approximately $100 per month in interest, which over a 12-month construction period totals $1,200.

Not all construction lenders offer offset accounts, and some that do will charge a higher annual fee or a slightly higher interest rate to access the feature. The value of the offset depends on how much surplus cash you hold during construction. If your savings are depleted after the land settlement and you are living month to month, an offset account delivers minimal benefit and the additional fee may outweigh the interest saved. If you are holding $30,000 to $50,000 in cash, either from a bonus, an RSU vest, or family contribution, the offset becomes a useful tool and should be included in your loan structure from the outset.

Avoiding Mistakes During the Build Contract Negotiation

The build contract is negotiable, but most buyers focus on the inclusion list and overlook the payment schedule. Builders typically require a 5% deposit at contract signing, followed by progress payments at each construction stage. The payment schedule determines when your lender will release funds, and if the builder's schedule does not align with the lender's inspection and drawdown process, you may face delays or requests for additional cash payments to keep the builder on schedule.

Before signing the build contract, provide a copy to your broker and ask the lender to confirm that the payment schedule is acceptable. Some builders request payments in advance of reaching the nominated stage, particularly at frame and lock-up, and not all lenders will approve early release of funds. If the builder insists on payment before the lender will inspect, you will need to cover the gap from your own funds, which can run to $20,000 or more depending on the contract value. Identifying this mismatch before signing allows you to negotiate a revised payment schedule or to select a different builder whose process aligns with your lender's requirements.

If you are weighing whether a house and land package makes sense against purchasing an established home, the main trade-off is time versus customisation. A house and land package allows you to select finishes and layout, and it may attract a higher grant or stamp duty concession depending on your state, but it also extends your timeline and requires you to manage two contracts, a construction approval, and a longer period of dual payments. An established home settles faster and gives you immediate occupancy, but it may not qualify for the same grants and you will be purchasing at current market value without the ability to stage the price across land and build.

Call one of our team or book an appointment at a time that works for you. We will review your income structure, map out the deposit and duty breakdown, and recommend a lender that handles both the land and construction components under the scheme you are using.

Frequently Asked Questions