Can you get pre-approval for a house and land package?

A house and land package is one of the most common ways first home buyers get into a brand new home, but the finance behind it works differently from buying an established house. The short answer is yes, you can and should get pre-approval, and getting it before you sign anything is one of the most important things you can do to protect yourself.

Why a package is different from buying an established home

When you buy an established home there is one contract and one fairly simple loan. A house and land package is different. You are dealing with two contracts, one to buy the land and one to build the home, and the finance is usually a construction loan that pays your builder in stages rather than handing over a single lump sum. That structure changes how approval works, so it helps to understand it before you walk into a display village.

Get pre-approval before you commit

The single most important rule is do not commit to buy the land or sign the building contract until you are pre-approved. It is easy to get swept up at a display home and sign on the day, but if your finance then falls short you can be left exposed. Where you can, make sure the land contract and the building contract include a subject to finance clause or a cooling off period, so you have a way out if the loan does not come together as expected. Getting legal advice before you sign either contract is money well spent.

What conditional pre-approval gives you

A conditional pre-approval is an assessment of you, your income, your expenses, your deposit, that indicates how much a lender may be willing to lend, subject to conditions. For a package it gives you a realistic budget to choose your land and design, and the confidence to sign knowing the finance is likely to follow. It is not the final yes, but it is the green light to commit sensibly.

The two contracts, and how the loan fits

You will generally sign a contract of sale for the land and a separate fixed price building contract with a licensed builder. The two loans can be arranged separately, but they are usually bundled into a single facility with two parts: a land component and a construction component. The construction part then releases money to your builder in stages as the home is built, which is covered in our guide on how a construction loan works.

The valuation is done on completion

Here is a key difference. For a build, the lender does not just value the land as it is today. It arranges an on completion valuation, an estimate of what the finished home will be worth once built, and it lends against that. The valuer typically provides both a land only value and an on completion value. This matters because if the on completion value comes in below your total land plus build cost, you can face a valuation shortfall, which we explain separately.

From conditional approval to full approval

Full, unconditional approval comes once a few things are in place: the land is registered or at least accessible to be valued, your fixed price building contract is signed, and the on completion valuation is done. One practical catch is that if the land is still going through civil works, such as roads and drainage in a new estate, a full valuation may not be possible yet, so formal approval can be delayed until the land is ready. Knowing this helps you plan your timing rather than be surprised by it.

What can trip up a package approval

A few things catch buyers out on packages, and being ready for them keeps your approval on track.

• A valuation shortfall, which is more likely in a new estate with few comparable sales to value against.
• Building costs that creep up through variations or allowances, leaving a funding gap.
• Some lenders requiring you to use your own deposit on the early invoices before they release funds, so you need cash ready.
• Timing mismatches between when the land settles and when the build can begin.

Why a broker who knows construction helps

Construction lending has more moving parts than a standard purchase, and lender policies vary a lot. A broker experienced with construction loans can get your pre-approval right, line up the land settlement and the build, work out your funds to complete for both parts, and steer you toward lenders whose policies suit your package. For most home loans this guidance is at no cost to you, since the lender pays the broker on settlement.