House and land packages are an enticing option for house hunters looking to craft their unique living spaces and build their dream home in Perth. But while it’s clear how building a home differs from buying one, how is a home loan for a house and land package different from a traditional home loan?

What are house and land packages?

House and land packages streamline the home building process. Instead of purchasing land and then seeking a builder, buyers choose a block and a home design that fits it perfectly. With a single transaction, they can secure both the land and the construction of their new home.

This streamlined process often results in cost savings, more straightforward financing options and a more streamlined process overall.

What is the difference between a house and land package and buying off-plan?

House and land packages are a package deal, when buyers purchase the plot of land and the home that will be built on it simultaneously, buying “off the plan” or “off plan” is more of a leap of faith. It means buying a home based on architectural plans. 

A house and land package will usually involve two contracts - one for the house and the other for the land - while the off-plan means a single contract. House and land packages will also offer buyers some customisation options.

When it comes to a house and land package vs. off the plan, off the plan may offer less flexibility and greater cost volatility over the course of the project.

How do house and land packages work?

How a house and land package works depends on the developer and the package. Typically, property developers or building companies will package together various blocks of land with several compatible house designs. Once you’ve selected a block of land and a house design, you will sign two contracts, one for the house and one for the land. 

On the finance side, people often take out a land loan to purchase the home, as well as a construction loan to cover the costs of the build. You will need a deposit for these.

You will then pre-select the design of your home from a selection of options. Depending on your builder, there may be options to customise. 

Inclusions

House and land packages usually include the home design, its construction (using standard materials), structural work, interiors like walls, floorings, bathrooms and an electrical fitout. 

Most house and land packages offer standard finishes, but you will usually have the option to include an upgrade to your fixtures and fittings, as well as your appliances (if there are higher-end models that you like). 

Some house and land packages will include landscaping. If not, it can be an extra add-on, as can driveways, fencing and air conditioning upgrades. 

Can you customise a house and land package?

Typically, the home designs for a house and land package are pre-set, which means the local council has pre-approved them.

But at Novus, however, we offer the opportunity to fully customise your home because we know how important it is that it suits you. That means you have the option to choose from one of our existing designs, combine elements from more than one home design or work with our designers to tailor make a design to suit your needs. 

How to finance a house and land package

House and land home loans are quite different to standard home loans. As the house and land process is a two stage one, financing it can also be in two stages, with two different payments. 

How does a home loan for a house and land package work?

Financing a house and land package usually consists of two steps: buying the land with a regular mortgage, then building the house using a construction loan. The loans can be arranged separately, but are usually bundled together into a single loan, with two contracts.

What is a land loan?

A land loan, also known as a vacant land loan, is a type of financing for a land purchase that does not have an existing home or structure on it. 

It is distinct from a traditional mortgage because there is no physical building to act as security for the loan. If you take out a singular land loan, there’s no requirement to build on the land immediately, but lenders will want to know your intentions, as unsecured land is seen as a riskier investment. 

What is a construction loan?

A construction loan is a loan that you take out when you’re planning to build a property. It gives you access to the money in stages, as your build progresses. Your payments will be staged to match key milestones within your build. 

The biggest advantage of taking out a construction loan for your house and land package is that, during the build, you only pay interest on the part of the loan that you have already drawn down, not the total loan that has been agreed upon.

What is a progress payment or drawdown on a house and land package loan?

If you want to access a construction loan, your home must be built under a fixed-price building contract and signed by a licensed builder. There are usually five key stages of construction: slab, frame, lock-up, fixing and completion. 

Within these five stages, key milestones form payment stages. This means your builder will invoice you when they are completed. Once the bank or financial institution that has granted you the house and land loan sees the invoice, they reimburse your builder.  

How is a house and land loan different from a traditional home loan?

A house and land loan is different from a traditional home loan mainly due to its structure, which also has an impact on its repayment schedule and the lender’s security (or the loan to valuation ratio). 

Loan structure

With a traditional home loan, you borrow a sum of money or mortgage to purchase a home. Your vendor receives the loan in one lump sum, which you then repay with interest for a fixed term. 

The loan structure for a construction loan is completely different. Instead, the funds are released in a series of smaller ‘progress payments’ which are paid directly to the builder. 

Repayment schedule

You start making principal and interest payments on a traditional home loan from day one of the settlement. With a home for house and land construction, typically you only make interest only repayments on the amount that’s been drawn down, which means your payments are much lower. 

Once the builder has completed your home and the final progress payment has been made, the loan converts to a standard loan and repayment schedule for principal and interest repayments. 

The Loan to Valuation Ratio (LVR)

Lenders use the LVR on a potential mortgage to work out the potential risk of the loan. Lenders calculate the LVR by dividing the property’s value by the loan amount. 

The higher your LVR, the more risk your loan carries. With a construction loan, the risk is higher for the lender because the asset (the house) does not exist yet. To mitigate this risk, lenders often have stricter requirements, often around deposits. 

How much of a deposit do you need?

While many lenders require a 20% deposit, there are other options. WA Government initiative, Keystart, offers home loans for people with deposits as low as two percent. 

Because deposits are expressed as a percentage of the home you want to build or buy, there is no such thing as a minimum amount. Two percent of a million dollars is double two percent of 500,000. 

When you are saving for a deposit to buy a home or a house and land package, don’t forget there are other expenses you will need to factor in, including stamp duty, legal costs and title transfer fee, amongst others. 

Do you pay stamp duty on a house and land package?

Yes, you do pay stamp duty on a house and land package, but with a significant advantage compared to buying an established home.

The key difference is that you only pay stamp duty on the value of the land, not on the value of the house to be built.

This is because at the time of the land settlement, the house doesn't exist yet, and stamp duty is a tax on the transfer of a physical asset. Since you are only transferring ownership of the land at that point, that is all that is assessed for the duty, which can lead to considerable savings. 

Can first home buyers buy a house and land package?

Yes, you can buy a house and land package if you are a first time buyer. There are also plenty of incentives and concessions you can access, including the First Home Owner Grant and stamp duty concessions. 

First Home Owner Grant

The First Home Owner Grant (FHOG) is a $10,000 one-off payment for eligible home buyers, designed to encourage more people to get on the property ladder. As it’s a genuine grant, you do not have to repay it. 

You can put your FHOG towards a house and land package. 

First home buyer stamp duty concessions

First home buyers also have the chance to pay a reduced level of stamp duty, depending on the value of their home. The grant is capped, depending on which part of the state you live in, and it is applicable to house and land packages. 

What else do you need to consider? 

When trying to decide whether to select a house and land package, or which development company to work with, it’s important to think long-term. 

What's included?

There’s a huge variety in what different development companies offer as part of their house and land packages. Be clear about exactly what inclusions your builder offers and what type of upgrades and customisations are available. 

Resale value

Another thing to consider when selecting a house and land package is the long-term market trends for the area you’re buying in. What is the resale value likely to be? It’s worth doing your research into trends and prices before you commit. 

Post-completion support

When choosing a developer or house and land package, it’s worth asking what kind of after-sale support they offer, and how they deal with any defects or issues with the house after you’ve moved in. Go for a company that is clear and transparent about their approach and easily contactable before, during and after you build with them. 

How long does a house and land package take to be constructed? 

As with all builds, it depends on the individual circumstances. You do need to factor in the titling of new land, and the process of getting designs approved, before you move onto the actual build process, which is likely to take up to 12 months for a single storey home and longer for a larger, more complex design.

Read our new home building timeline guide for a more in-depth investigation.

How Novus can help 

Whether you opt for a house and land package, an existing property, or a separate land and build journey, understanding the financial landscape is crucial.

Here at Novus Homes, we will guide you through every step of the way and help you understand what is the best option for your unique situation and then point you in the right direction regarding a financial adviser or a mortgage broker that would be the best fit for you.

Don't hesitate to get in touch or talk to one of our friendly sales consultants on (08) 9240 8001. No matter what your question, we are here to help, so you can live your best life.