Buying land for construction guide
By Ali Hasani, Founder and Principal Mortgage Broker at Buyvest, MFAA accredited. Last updated July 2026. Lender construction policies and council approval pathways vary.
This guide covers the construction side: what you can build, how the loan actually works, what lenders need before approving one, what sits outside the building contract, and how long it takes. Site selection and land purchase are covered in our land buyers guide.
The short version: A construction loan releases funds across six stages, with an inspection before each release after the deposit, and charges interest only on what has been drawn. Lenders require a fixed-price contract with a licensed builder, approved plans and the builder's insurances. The loan converts to principal and interest at completion without a new application. Land purchase to moving in is commonly 18 to 24 months.
What are the construction options?
Building can mean a single home, a duplex sharing a wall, two detached homes, or a house with a secondary dwelling. Each changes the build cost, the approval path and how a lender assesses the finished value against the land.
A single home on the block is the simplest path. One approval, one design, the lowest council contributions, and the least that can go wrong. It is what most first home buyers build.
Beyond that, a duplex puts two dwellings under one roofline sharing a wall, which costs less per dwelling than building twice and can be strata titled for separate sale later. Two detached homes give more independence and need more land. A house with a secondary dwelling adds rental income or family accommodation on a single title. What any given block permits comes down to zoning, lot size and council controls, which the land buyers guide covers.
How does a construction loan work?
A construction loan releases funds in stages as the build progresses rather than settling in one amount. Six drawdowns are standard on a new home, and after the deposit each release follows an inspection confirming the work, with interest charged only on funds drawn.
This is the mechanism that separates building from buying, and it is worth understanding before signing anything. A construction loan is one approved facility that pays out in instalments as the build reaches defined milestones, rather than handing over the full amount at settlement. The lender arranges an independent inspection at each stage to confirm the work is actually complete before releasing that portion.
| Stage | Released when | Share of the build |
|---|---|---|
| Deposit | Contract signed, before work starts. Funds preliminaries and council lodgement | Around 5% |
| Base or slab | Slab poured, cured and certified | Around 15% |
| Frame | Structural frame and roof trusses complete | Around 20% |
| Lock-up | Roof, external walls, windows and doors in, building weathertight | Around 25% |
| Fixing or fit-out | Internal linings, cabinetry and fittings roughed in | Around 20% |
| Practical completion | Build finished and occupation certificate issued | Around 15% |
Stage names and percentages vary between lenders and building contracts.
The cash flow effect is the part people miss in a good way. Interest is charged only on funds drawn, so if $60,000 has been released for the slab, interest accrues on that rather than the whole facility. Repayments are interest only during the build and step up at each drawdown, then convert to principal and interest once the home is finished.
The fixed-price contract is the load-bearing document in all of this. Without one most lenders will not proceed on a standard residential build, because a cost-plus arrangement leaves the final figure open and the lender is approving against a number that can move. The full document set, and when each part is needed, is set out below.
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What documents does a construction loan need?
A construction loan needs documents at four points: before formal approval, before the commencement letter that lets building start, at each progress payment during the build, and before the final release. Most of them come from the builder rather than the borrower.
Alongside the usual application documents covering income, expenses, assets and liabilities, a construction loan needs a second set covering the build itself. Most come from the builder, which is worth knowing early, because chasing paperwork mid-build is what stalls a drawdown.
Before formal approval
- Draft building contract or builder's tender
- Draft progress payment schedule, usually included with the contract
- Draft building plans with elevations
- Receipts for items already purchased, such as kitchen appliances
- Quotes for out of contract items, such as a pool, fencing or landscaping
- Contract of sale for the land, where applicable
Before the commencement letter
The commencement letter is what allows building to start, and this is the heaviest document stage.
- Executed and signed building contract
- Final progress payment schedule
- Agreed schedule of finishes and specifications
- Council-approved building plans with elevations
- Contract variations, where applicable
- Quotes for out of contract items
- Builder's contract works insurance, equal to the building contract price
- Public liability insurance, commonly a $5 million minimum
During construction
- Signed progress payment invoices
- Receipts for items purchased, including appliances and contractor work
- Evidence of progress at each construction stage
Before the final progress payment
- Final signed progress payment invoice
- Final variations to the building contract, where applicable
- Building insurance policy, being the certificate of insurance or home building policy schedule
- Occupation certificate, or certificate of occupancy and compliance
Can you get a construction loan as an owner builder?
Owner builder finance exists but the panel is small. Standard construction loans are built around a licensed builder and a fixed-price contract, neither of which an owner builder has, so lenders apply lower maximum LVRs and specialist products.
Owner builder finance exists, but it is a narrower market than most people expect. Every element a lender relies on to control risk comes from the builder: the fixed price, the licence, the home warranty insurance, the progress schedule. An owner builder supplies none of them.
The consequences are a smaller lender panel, a lower maximum LVR than a builder-contracted project of the same value, and specialist products with drawdown schedules that fit the way an owner builder actually spends. Applying to several mainstream lenders first tends to produce declines and credit enquiries rather than approvals, which is worth knowing before rather than after.
What approvals do you need before building?
A build needs planning approval before work starts and an occupation certificate before anyone moves in. Simple designs meeting the standards can take a fast-track complying development pathway, while anything outside them needs a full development application through council.
Two approvals bookend the build. Planning approval comes first, and the pathway depends on the design. A home that meets the standards can go through a complying development certificate issued by a private certifier, which is measured in weeks. Anything outside those standards, or on a site with heritage, flood or bushfire constraints, needs a full development application assessed by council on its merits, commonly 2 to 6 months.
At the other end, an occupation certificate confirms the finished building complies and is the document that allows anyone to legally move in. It is also what releases the final construction drawdown, so the two processes are linked. Inspections happen at points through the build to confirm compliance as work proceeds.
What does building cost beyond the contract price?
The build contract is not the total. Site preparation, service connections, council contributions, consultant fees, landscaping and somewhere to live during the build all sit outside it, and a contingency of 10% to 20% is commonly held against variations.
The building contract covers the house. It does not cover getting the site ready or connecting it to anything. Site preparation, levelling, retaining on a sloped block, and service connections for water, sewer, power and communications all sit outside, and they vary enormously between a flat lot in a new estate and an infill site.
Then the soft costs: council development contributions, architect and engineer fees, approval and permit fees, and landscaping, which is underestimated more often than anything else on the list. Somewhere to live during the build is a real cost too, running alongside loan repayments on a property nobody can occupy. A contingency of 10% to 20% of the construction budget covers variations, which arrive on most projects.
Against all of that, the NSW First Home Owner Grant of $10,000 applies where land and building contract together come to $750,000 or less, and the Australian Government 5% Deposit Scheme covers land bought with a building contract, subject to its price caps. Transfer duty is calculated on the land, and under the First Home Buyers Assistance Scheme vacant land is exempt to $350,000 with a concession under $450,000. Duty outcomes turn on personal circumstances, so a conversation with your accountant or financial adviser is worthwhile.
How long does building take?
Design commonly runs 2 to 6 months, council approval another 2 to 6, and construction 6 to 12. From land purchase to moving in is commonly 18 to 24 months, with weather, builder availability and supply chains all able to extend it.
The sequence is design, approval, build, and each stage carries its own variability. Design and documentation run 2 to 6 months depending on how custom the home is and how quickly decisions get made. Approval takes 2 to 6 months through a development application, considerably less through a complying development pathway. Construction runs 6 to 12 months for a standard home.
Builder engagement overlaps rather than adding to the total, since quoting and contracting usually happen while design is being finalised. From land purchase to moving in is commonly 18 to 24 months. Weather, trade availability and supply chains all push it out, which matters because the loan is accruing interest and somewhere else has to be lived in throughout. Our settlement guide covers the closing stages.
Frequently asked questions
How does a construction loan differ from a home loan?
A home loan settles in one amount. A construction loan releases funds across six stages as the build progresses, with an inspection before each release after the deposit. Repayments are interest only during the build and switch to principal and interest once the home is finished.
What do lenders need before approving a construction loan?
A fixed-price building contract with a licensed builder, council-approved plans with elevations, the agreed schedule of finishes, the builder's contract works insurance equal to the contract price, public liability insurance, and the final progress payment schedule. Without a fixed-price contract most lenders will not proceed.
Do you pay interest on the whole loan during construction?
No. Interest is charged only on funds actually drawn down. If the slab stage has released $60,000, interest accrues on that amount rather than the whole approved facility. Repayments rise at each stage as more of the loan is drawn.
What happens to the loan when the build finishes?
It converts to a standard principal and interest home loan once the final stage is released and the occupation certificate is issued. No new application is required for the conversion itself. Refinancing afterwards is optional and worth reviewing on rate rather than necessary.
Can you get finance as an owner builder?
It is possible but the lender panel is much smaller and the terms are tighter. Standard construction lending is structured around a licensed builder and a fixed-price contract, so without those most lenders reduce the maximum LVR or decline the application entirely.
How long does it take from land to moving in?
Design commonly runs 2 to 6 months, council approval another 2 to 6 months, and construction 6 to 12 months. Total from land purchase to occupancy is commonly 18 to 24 months, and builder availability and weather both move the finish date.
What costs sit outside the building contract?
Site preparation and levelling, service connections, council contributions, consultant fees for an architect or engineer, approval and permit fees, landscaping, and accommodation during the build. A contingency of 10% to 20% of the construction budget is commonly held against variations.
Do you pay stamp duty on the land or the finished home?
On the land. Under the First Home Buyers Assistance Scheme, vacant land is exempt from transfer duty up to $350,000 with a concession under $450,000 and no relief above that. The duty is calculated on the land rather than on the finished home.
Take the next step
On a build, the finance structure is settled before the first drawing is done, because the fixed-price contract and the drawdown schedule are what the lender approves. Our pre-approval guide covers borrowing capacity, our bank valuations guide covers how a lender values a home that does not exist yet, and our property type guide compares building against buying established. Model the numbers with our property deposit calculator and mortgage repayment calculator.
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Email: hello@buyvest.com.au
Related resources for first home buyers
Land buyers guide | Property type comparison | Freestanding properties | First Home Owner Grant | NSW stamp duty | Settlement guide | First home buyers journey
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This article is general information only and does not take your personal circumstances into account. Construction loan structures, drawdown stages and percentages, lender document requirements, owner builder policy and council approval pathways vary between lenders and council areas and change over time. Duty thresholds and approval pathways described here are specific to New South Wales. Figures were verified in July 2026 against published lender guidance on construction lending, and Revenue NSW First Home Buyers Assistance Scheme and First Home Owner Grant thresholds. Confirm your position with a licensed broker, lender, builder or certifier before relying on it. Ali Hasani is an Authorised Credit Representative (CRN 567392) of Connective Credit Services Pty Ltd (Australian Credit Licence 389328).
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