Common Mistakes When Financing House & Land Packages

A construction loan is not the same as a standard mortgage.

When you buy a house and land package, the bank releases your loan amount in stages as the build progresses, not in one lump sum at settlement. You pay interest only on what's been drawn down, and you'll need to understand progress payment schedules, council approval timelines, and how your application gets assessed differently to a purchase of an existing home. If you're a teaching assistant looking at a new build, getting the structure of the loan right before you sign the building contract makes the process far more predictable.

How Construction Loans Work for House and Land Packages

A construction loan advances funds in instalments tied to specific stages of the build. The lender assesses the land value and the building contract, then approves a loan amount based on the completed value of the property. You settle on the land first, then the lender releases funds at each stage, such as base, frame, lockup, fixing, and practical completion. Each release requires a progress inspection to confirm the work has been completed to standard.

You only pay interest on the amount drawn down at each stage, not the full loan amount. If the land costs $200,000 and the build costs $350,000, you'll initially pay interest only on the $200,000 land component until the first progress payment is made. Once the base stage is completed and the lender releases another $70,000, your interest charges increase to cover $270,000. This continues until the final draw at practical completion, when the loan converts to a standard principal and interest or interest-only repayment structure depending on what you've arranged with your lender.

Most lenders charge a progressive drawing fee for each inspection and drawdown, typically between $200 and $400 per progress payment. Some lenders cap this at a fixed amount for the entire build, while others charge per inspection. You'll also need to factor in council approval and any development application fees that sit outside the building contract, as these are usually your responsibility and won't be covered by the construction loan unless explicitly included in the finance structure.

Fixed Price Building Contracts and What Happens If the Cost Blows Out

A fixed price building contract locks in the total cost of the build before you start. The contract should detail what's included, what's excluded, and what qualifies as a variation. Lenders prefer fixed price contracts because they reduce the risk of cost overruns and provide certainty around the final loan amount. If you sign a cost plus contract, where the builder charges for materials and labour as the project progresses, most mainstream lenders won't touch it. Construction loans for teachers are typically assessed on fixed price building contracts with a registered builder.

If the build costs more than expected due to variations you've requested, such as upgraded fixtures or additional rooms, you'll need to cover the extra amount yourself or apply for a loan top-up before the variation is approved. If the cost blows out due to builder delays, defects, or changes in material costs, the builder is usually responsible under a fixed price contract, but disputes can delay progress payments and extend the timeline. If you're unable to settle on the land or commence building within the set period from the disclosure date stated in your loan approval, the lender may withdraw the offer or require you to reapply.

Consider a teaching assistant who signs a $320,000 fixed price contract and later decides to add a deck and upgrade the kitchen. The variation adds $18,000 to the total cost. The lender won't automatically increase the loan amount unless you apply for a top-up and the property's final valuation supports the higher loan-to-value ratio. If your deposit only just covered the initial contract price, you may not have enough equity or savings to fund the variation, which means the upgrade gets dropped or you delay other spending to make it work.

Progress Payment Schedules and Timing Your Drawdowns

The progress payment schedule is set out in your building contract and typically includes five or six stages. The lender releases funds after each stage is inspected and approved, but there's usually a gap between when the builder invoices you and when the lender releases the funds. You'll need to manage cash flow during this period, particularly if the builder requires payment before the lender's inspection is completed.

Some lenders allow you to make additional payments into an offset or redraw account during construction, which can reduce the interest charges on the drawn-down portion of the loan. This is worth setting up if you receive a tax refund, bonus, or other lump sum during the build. Home loans for teaching assistants often include offset accounts at no extra cost, which makes a difference when you're paying interest on a progressively increasing loan balance for six to twelve months.

If the builder falls behind schedule, your interest-only period may run out before the build is complete. Most lenders provide an interest-only period during construction, typically twelve months, with the option to extend if the build takes longer. If the extension isn't approved or you don't request it in time, the loan may revert to principal and interest repayments while you're still renting or living elsewhere, which doubles your monthly housing costs until the build is finished. Checking the interest-only terms in your loan approval before signing the building contract avoids this scenario.

Council Approval and Development Application Delays

You can't start building until council approval is granted. The timeframe varies depending on the council, the complexity of the build, and whether any neighbours lodge objections. Standard house and land packages on estates with pre-approved designs usually get through faster than custom builds on standalone blocks. If your building contract includes a clause that the build must commence within a set period from the disclosure date, and council approval takes longer than expected, you'll need to negotiate an extension with the builder or risk the contract lapsing.

Some lenders require evidence of council approval before they'll issue final loan approval, while others will approve the loan conditionally and release funds for the land settlement before the development application is finalised. If you're buying in a new estate where the land title hasn't been issued yet, you may also face delays in registering the title, which pushes back the land settlement and the start of construction. This is common with house and land packages sold off the plan, where the developer is still completing civil works and subdividing the land.

If council approval is delayed by more than three months and your loan pre-approval expires, you may need to reapply. Interest rates could have moved, your income or expenses might have changed, or lending policies may have tightened. Reapplying doesn't guarantee the same loan terms, so it's worth extending your pre-approval before it lapses if you know council approval is going to take longer than expected.

Qualifying for a Construction Loan as a Teaching Assistant

Lenders assess construction loan applications more conservatively than standard home loan applications. They'll look at your income, your deposit, the land value, the builder's credentials, and the completed value of the property based on a valuation. Because the property doesn't exist yet, the valuation is done on an "as if complete" basis, which estimates what the finished home will be worth once construction is finished.

If you're a teaching assistant on a casual or part-time contract, some lenders will assess your income differently depending on how long you've been in the role and whether you have a history of consistent hours. Home loans for teaching assistants can be structured using your last two years of tax returns if that shows a higher average income than your current payslips. If you've only recently started in the role, the lender may assess you at a reduced percentage of your stated hours, which affects your borrowing capacity.

You'll also need to show enough savings to cover the deposit, the costs for the land settlement, and any gap between progress payments and drawdowns. If you're using the First Home Guarantee or another deposit scheme, the deposit requirement may be lower, but you'll still need to cover stamp duty, legal fees, building insurance during construction, and any upfront costs not included in the building contract.

Call one of our team or book an appointment at a time that works for you. We'll walk through your building contract, check the progress payment schedule, and set up a loan structure that lines up with your income and the build timeline.

Frequently Asked Questions