In short: A house and land package is financed with a construction loan covering two contracts: the land, which settles first, and the build, paid to the builder in stages as work is completed. You pay interest only on funds drawn during construction, stamp duty is charged on the land only, and first home buyers can often combine the $10,000 First Home Owner Grant, the First Home Guarantee and the duty exemption.
Buyers in Melbourne's growth suburbs love the idea of a house and land package: a new home, a fixed price and a display village to walk through. The finance side is the part that is rarely explained well, and it is where timing mistakes cost money. This post walks through the whole thing in order.
Two contracts, one loan
A house and land package is not a single purchase. You sign:
- A contract of sale for the land with the developer or landowner.
- A building contract with the builder, usually a fixed-price domestic building contract with a set of plans and specifications.
Some developers present the two as a bundled package with one price, but legally they remain separate, and the lender treats them separately. Your construction loan is approved for the combined amount, with the land component funded at land settlement and the build component released in progress payments. Our construction loans service covers what lenders look for.
How the money flows
| Stage | What happens | What you pay |
|---|---|---|
| Land settlement | Lender funds the land purchase; title transfers to you | Deposit on land; interest starts on the land loan |
| Slab / base | Builder completes foundations, invoices lender | Interest on land plus slab drawdown |
| Frame | Frame and roof trusses up | Interest on amount drawn so far |
| Lock-up | External walls, roof, windows and doors | Interest on amount drawn so far |
| Fixing | Internal fit-out, plaster, cabinetry, plumbing fit-off | Interest on amount drawn so far |
| Completion | Final inspection, keys handed over | Loan converts to principal and interest on the full balance |
The lender sends a valuer or inspector to confirm each stage before releasing the payment. Your own contribution, the deposit, is generally used first, before the lender's funds. The construction loan progress payments guide explains each stage in detail.
A worked example in Donnybrook
For illustration, a first home buyer couple buys a $340,000 titled lot and signs a $320,000 build contract in Donnybrook. Total $660,000.
| Item | Amount |
|---|---|
| Land | $340,000 |
| Build contract | $320,000 |
| Total | $660,000 |
| Stamp duty | Nil (first home buyer, land under $600,000, principal residence) |
| First Home Owner Grant | $10,000 (new home, under $750,000) |
| Deposit under First Home Guarantee (5%) | $33,000 |
| LMI | Nil under the guarantee |
| Loan at completion | $627,000 |
At 6.00% p.a. over 30 years, the fully drawn loan costs about $3,759 a month once complete. During the build, if only the land and slab are drawn, the interest bill is a fraction of that. Many couples keep renting through construction and treat the low interest-only period as a chance to top up their savings.
Compare the same $660,000 spent on an established home in Craigieburn: duty on the sliding scale between $600,001 and $750,000 and no grant. The stamp duty calculator shows the difference, and house and land vs established weighs the other trade-offs.
Why stamp duty is only on the land
Land transfer duty is charged on what exists at the contract date. With a house and land package the house has not been built when you sign, so duty applies to the land contract alone. That is one of the biggest financial advantages of building over buying established. It also means first home buyers on land at $600,000 or below pay no duty at all when the home will be their principal residence, subject to the 12-month residency rule.
The grants and schemes that stack
- First Home Owner Grant: $10,000 for a new home valued up to $750,000 that has never been occupied. Usually paid at the first progress payment. Details in our First Home Owner Grant guide.
- First Home Guarantee: 5% deposit, no LMI, no income cap. The property cap for Melbourne and Geelong is $950,000, which is assessed on the combined land and build value.
- First home buyer duty exemption and concession: exemption to $600,000 and sliding concession to $750,000, applied to the land value.
- Help to Buy: the federal shared equity scheme contributes up to 40% for a new home if your income is under $100,000 as a single or $160,000 as a couple.
Where buyers get caught
The build contract changes after approval
Variations for upgraded benchtops, extra downlights or a bigger alfresco are common. Every variation after loan approval has to be funded by you in cash unless the lender agrees to increase the loan, which means a reassessment. Finalise your selections before you apply.
Site costs and what the package excludes
Standard packages often exclude or under-allow for site works, rock removal, retaining walls, driveways, fencing, landscaping, flooring and window coverings. Ask the builder for a full list of exclusions and get a fixed-price contract wherever possible. The upfront costs calculator helps you total these.
Land that is not yet titled
If the lot is still being developed, settlement waits for title registration, which can slip by months. Your pre-approval may expire, interest rates may move, and your circumstances may change. Ask your broker to plan the application around the expected title date and use a lender with a longer pre-approval window.
Valuation shortfalls
The lender values the package on the lesser of the contract price or the valuer's assessment. High-spec builds in areas with cheaper comparable sales sometimes value below cost. Keep a cash buffer to cover any gap.
The builder's timeline and your rent
Builds in Melbourne's growth corridors typically run many months from slab to keys. Budget for rent plus construction interest across that period.
Checklist before you sign
- Pre-approval for the combined land and build amount.
- Fixed-price build contract with all selections and site costs included.
- Land title date confirmed with the developer.
- Grant eligibility confirmed (new home, under $750,000, citizen or permanent resident, 12-month residency).
- Contracts reviewed by a conveyancer, including the sunset clause on the land contract.
- Buffer for exclusions and possible valuation shortfall.
Frequently asked questions
How much deposit do I need for a house and land package?
Under the First Home Guarantee, eligible first home buyers need 5% of the combined land and build price, with no LMI. Outside the scheme, lenders typically want 10% to 20%, with LMI applying above 80% loan-to-value ratio. The $10,000 First Home Owner Grant can usually be counted towards your contribution when building a new home.
When is the First Home Owner Grant paid on a house and land package?
For a build, the grant is normally paid by the lender at the first progress payment after the slab is laid, rather than at land settlement. That means you need to cover the land deposit from your own funds and the grant then reduces what you borrow for construction. Timing varies by lender, so ask before you rely on it.
Do I pay interest while my house is being built?
Yes, but only on the amount drawn so far. Once the land settles you pay interest on the land loan, and each progress payment adds to the balance you pay interest on. Most lenders charge interest only during construction, and the loan switches to principal and interest repayments after the final payment at completion.
What happens if the builder goes into liquidation?
Domestic building insurance in Victoria provides some protection for incomplete work if the builder dies, disappears or becomes insolvent, subject to limits. Your lender will pause progress payments until a replacement builder is engaged and a new contract is assessed. Check the builder's registration and insurance before signing and keep every document.
Talk to GNT Finance
House and land finance is our home turf. GNT Finance is based in Mickleham and structures land, construction and grant timing for buyers across Melbourne's north every week. Book a free consultation or call Gorakh Timilsina on 0426 403 703.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.