Deposit Differences: Why a Land Loan Isn't the Same as a Construction Loan.

The Big Hurdle: Why the Deposit is So Much Higher

Let's get this out of the way first: How you get finance depends entirely on your intentions for the land. This is where most people get a surprise. While you might be able to buy an existing house with a low deposit, for bare land, the rules are much stricter.

• Vacant Land Loan: This is for buying an empty section with no immediate plans to build. Because there's no house to secure the loan against, banks see this as higher risk.
  
• Construction Loan: This is the most common path. It's a specialised loan that covers both the land purchase and the cost of the build, all bundled together (even if they happen at different times).
  
• Rural Land Loan: This is a specialist category for larger plots or farmland, which comes with its own unique set of rules.
  

Lenders will typically require a deposit of between 20% and 50% of the land's value.

Why such a big range? It all comes down to risk.

• A 50% deposit might be required for a vacant land loan on an undeveloped rural block with no services (like water or power).
  
• A 20% deposit might be all you need if you're getting a construction loan for a fully-serviced section in a new subdivision, and you have a fixed-price build contract ready to go.
  

The more "build-ready" your plan is, the less deposit the bank will generally require. They are much more confident lending money for a clear plan (land + house) than for just a block of land.

It's Not One Loan: Understanding Construction Contracts

This is the most critical part to understand. The type of build contract you have dictates how the bank will lend you the money and when you start paying interest.

Here are the three main types:

1. Turn-Key Contract

As the name suggests, you pay an initial deposit, and the building company handles everything. You don't pay the full, final amount until the home is 100% complete, has its Code of Compliance, and you're ready to "turn the key" and move in.

• The Big Benefit: This is the easiest and most hands-off approach. Better yet, you're not paying interest on the full loan during the build, which is ideal if you're renting or paying another mortgage at the same time.
  

2. Fixed Price Contract

This is the most common arrangement. You buy the land (or it's included in the contract), and the builder gives you a fixed price for the entire build.

The bank then pays this out in a series of "progress payments" as the build reaches certain milestones (e.g., slab poured, framing up, roof on, etc.).

• The Catch: You start paying interest on the loan as soon as the first payment is drawn down. As each stage is paid, your loan balance and interest costs increase. We must prove to the bank that you can afford both your current living costs (rent/mortgage) and the increasing interest payments on the build.
  

3. Labour Only / Partial Contract

This is a "project manager" or full DIY-style build where you manage all the sub-contractors and materials yourself.

• The Hard Truth: This type of finance is extremely difficult to get. Lenders see it as high-risk. You'll need a very large deposit, and most banks will only lend against the land value, not the future "on-completion" value. In many cases they will also include a portion of the costs to do the build too, but less than if it was a fixed-priced contract. This is a path best left to experienced builders.
  

Your Strategy: Lawyers, Timelines, and Advice

A land-and-build project has more moving parts than a standard purchase. A few final, critical points to remember:

• Get a Lawyer First: Never sign a build contract (or a Sale & Purchase Agreement) until a lawyer has reviewed it for you. They will be able to spot hidden risks or unfair clauses.
  
• Watch the Timeline: A standard bank loan offer is often valid for 12 months. A build can easily take longer than this. If your build runs late, your finance offer could expire, forcing a brand new, full assessment. 
  
• Talk to an Adviser (Early!): This is where an Adviser is essential. Our job is to match your build contract to the right lender, ensure the payment schedule works for the bank, and help you manage the entire finance process from the first draw down to the final handover.
  

Buying land and building is a hugely rewarding journey, but it's not a standard mortgage process. Success lies in careful planning, a solid budget, and having the right team.

Before you fall in love with that perfect patch of land, let's have a chat. We can build a financial plan that's as solid as the foundations of your future home.