Buying land as a first home buyer: what you need to know about government schemes, guarantors, and construction loans
Buying your first home is an exciting step—but when you choose to buy land and build, the process is far more complex than simply buying an established house. While government schemes like the First Home Guarantee, First Home Owner Grant (FHOG), and stamp duty concessions aim to support first home buyers, there are strict conditions attached. If you don’t have a family guarantor, securing the right type of finance and accessing these schemes can be especially difficult.
The appeal of buying land and building
Building your own home offers the opportunity to:
- Customise the design to suit your lifestyle;
- Potentially save on stamp duty (since you only pay it on the land in most states);
- Enter the market in newer or more affordable suburbs.
However, these benefits are tied to navigating complex loan structures and strict eligibility rules for grants and schemes.
Land and construction loans: how they work
When you plan to build, you typically need a land and construction loan package. This is different from a regular home loan for an existing property.
Do you get a land loan and then a construction loan separately?
No—you do not apply for two separate loans. Instead, you apply for one single loan package that includes both:
- The land loan portion:
This is drawn down first to pay for the purchase of the block of land. - The construction loan portion:
Once your builder is ready to begin, the lender releases funds in progressive payments (called drawdowns) as the construction moves through agreed stages (e.g., slab, frame, lock-up, etc.).
This type of loan is called a construction loan, and it’s designed to fund both land and building costs together.
Key conditions:
- You will need a fixed-price building contract and detailed building plans at the time of application.
- The lender will assess your ability to repay the full loan amount (land + build) upfront.
- You generally only pay interest on the portion that’s drawn down during the build, not the entire amount immediately.
Why you need both contracts at once:
To access most first home buyer schemes and gain full loan approval, you must:
- Submit both the contract of sale for the land and a signed, fixed-price building contract at the time of loan application.
- Demonstrate that you intend to start construction soon after settlement (usually within 12 months).
If you only purchase land and delay arranging a build contract, most lenders won’t approve the construction portion later—especially if you have a small deposit and no guarantor.
Government scheme timeframes: don’t miss out
To remain eligible for grants and guarantees, strict construction timelines apply. For example, in Victoria:
- Construction must commence within 12 months of settlement (land or combined loan);
- The home must be completed within 24 months;
- You must move in within 12 months of completion and live there continuously for at least 6 months.
If you don’t meet these conditions, you may lose eligibility or be required to repay grants.
The role of a family guarantor
Many first home buyers don’t have the 20% deposit typically required by lenders. Without this, you’ll either need to:
- Pay Lenders Mortgage Insurance (LMI), or
- Use a family guarantor, who offers part of their home’s equity as additional security.
A guarantor can help you:
- Avoid LMI costs;
- Get approved for a larger loan covering both land and construction;
- Secure both contracts upfront, ensuring access to first home buyer schemes.
What if you don’t have a guarantor?
If you don’t have a guarantor:
- You may only be able to afford the land upfront;
You may be unable to secure a construction loan without a sufficient deposit; - You risk missing scheme eligibility, as grants and concessions are tied to tight timeframes and simultaneous contracts.
Tips for first home buyers planning to build
- Get pre-approved for the full package (land + construction)
Avoid applying for just a land loan. Pre-approval for both components ensures you’re eligible for grants and don’t face finance issues down the track. - Have a fixed-price building contract ready early
Lenders and government schemes require this to assess loan value and risk. - Work with a mortgage broker
Brokers are invaluable for navigating complex loan packages, especially if you're trying to avoid using a guarantor. - Explore turnkey or house-and-land packages
These are designed to meet scheme criteria and simplify the finance process. - Understand and track timeframes
Carefully follow construction and occupancy deadlines to avoid losing out on financial assistance.
Buying land and building your first home is achievable—but only if you plan carefully. A land and construction loan must be arranged as a single package, with both contracts in place upfront. Without a guarantor or a substantial deposit, this can be a major barrier—and may result in ineligibility for government support like the FHOG or First Home Guarantee. By understanding how finance works, staying within construction timeframes, and seeking the right advice, you can maximise your chances of success on the path to home ownership.
