Are you planning on buying vacant land to build? Do you need a land equity loan?

You may be able to use the equity in your land as a deposit for a construction loan.


Can banks consider land equity on a construction loan?

Yes, some lenders can consider up to 80% of your land equity for a construction loan.

You’ll need to provide the lender with a valuation of the land (at your own cost) and mention how long ago you purchased it.

If you have a valuation already, lenders may still require another valuation depending on how recently it was done.


How much can I borrow for a construction loan?

You may be able to borrow up to:

If you want to borrow 100% of the land and construction costs, you’ll need the help of a guarantor.

A land equity construction loan that involves a guarantor can be complex and result in delays and errors with most lenders.

We have mortgage brokers who specialise in guarantor mortgages and construction loans.

We can help you select the right lender for your situation and structure your loan so you can build your new home without much hassle.

Please speak with one of our credit specialists by calling us on 1300 889 743.

You can also complete our online assessment form and one of us will contact you instead.


What are the risks involved?

With a land equity construction loan, your borrowing power is the main element that’s at risk.

Banks use the valuation figure of the land value plus the cost of construction as the total purchase value.

This means that the amount you can borrow depends a lot on the land valuation.

For instance, let’s assume you’re planning on building on land that you already own

The land is valued at $80,000 and you work out the cost of construction is going to be $300,000.

In total, you need to borrow $350,000.

Since the total purchase price will be the land value ($80,000) plus the costs of construction ($300,000), or $380,000, you would actually need to borrow at least 92% Loan to Value Ratio ($350,000 / $380,000 x 100%).

If the land value is higher, for example $90,000, the total purchase price becomes $390,000 dropping your loan amount to 89% LVR.

In this way, you can not only get approved with more lenders but you can also save thousands of dollars on Lenders Mortgage Insurance (LMI), which increases sharply if you go over 90% LVR.

If the land value is lower, for example $70,000, the total purchase value becomes $370,000 increasing your loan amount to almost 95% LVR.

This means you’ll need to come up with several thousands of dollars more to complete the purchase.


Should I invest all of my savings into vacant land?

If you’re planning to build on land you already own then you can put all of your savings into the land and build.

This is because you can increase the land value by investing more on it and take out a land equity construction loan when you build.

If you’re buying land and you have no intention to build within 12 months of settlement, it may be a better option to hold onto your savings since they are much easier to access than equity.

When purchasing land, you need to meet the following requirements to ensure you’ll be able to access the equity at a later stage:

  • Location: It’s important to choose a location that is either in a major city or town or at least close to one.
  • Services: The land must be connected to the electricity grid and have access to town water or tank water as well as sewerage services.
  • Size: The land must be no larger than 50 hectares – only a few lenders will consider land sizes larger than this.
  • Access: There needs to be easy access to the land via a road. As long as it’s well maintained, dirt roads are usually ok.

Disclaimer:The above must not be taken as financial advice. Please speak with a professional financial advisor before you make a decision.


Do you need a land equity construction loan?

Our credit specialists have many years of experience in the mortgage industry.

We have mortgage brokers who have dealt with numerous construction loan applications including people who are borrowing against land equity.

Tell us about your situation and loan needs by calling us on 1300 889 743.

If you’d like one of us to contact you instead, you can enquire online and we’ll get back to you in 24 hours.


  • S. Neil

    I was preapproved for a construction loan a while back, and my lender said that they can accept 60% of the equity I had in land I owned. Now my preapproval has been withdrawn! Why is it so hard to get a good preapproval?

  • Hi S. Neil,

    Sorry to hear that but there are several reasons why your preapproval may have been withdrawn. It could be that the preapproval was unreliable from the start, e.g. it was an on the spot approval and didn’t actually go to the bank’s credit department. The LMI provider could also have declined your loan. If your situation or the lender’s policy has changed then that too could have been the reason.

    Please call us on 1300 889 743 to directly discuss your situation and details with one of our mortgage brokers and find out how we can help.

  • Lucy

    I am looking at getting $500,000 as a payout figure from my husband from my current house. I was hoping to buy a block of land worth $560,000 and build and move in around 24 months later. During this time I would pay my husband rent for living in the house that I once jointly owned. Do you think I would be able to get a $350,000 loan on my own to pay for the build? I have two childen and my base income is $85,000.

  • Hi Lucy,

    We’d have to do a full assessment to be sure, however indicatively yes this looks viable. You have plenty of equity and also your income looks sufficient assuming you have no other liabilities. If you receive income such as Family Tax Beneifts A&B or child support then some lenders can consider this as well depending on the age of your children https://www.homeloanexperts.com.au/unusual-employment-loans/child-support-home-loan/

  • Lucy

    Thank you kindly.

  • Sandy

    Hi, We own our land (valued at $290,000) and we are currently building a house on it. So far we have spent $190,000 on it but we are now $80,000 short to finish. Is there a bank that would lend us the money? We have an owner builders license and have income to cover the $80,000 loan.

  • Hi Sandy,
    A partially complete home that does not have a licenced builder is almost impossible to finance. We have some private lenders that may consider lending 70% of the property value as it is now. They’re very expensive so if you can borrow off of a family member instead then this is much better. Potentially they could borrow on their home and lend it to you to complete your project.

  • Sandy

    Not even an equity loan?

  • Sorry my mistake, yes if your land if unencumbered (no loan) then yes we can assist with this. It’s still an exception to lending policy but it’s likely we can help.

  • Ben

    Hi,
    I own land worth approx $600,000. I’m looking to build 2 townhouses with the build costing approx $700,000 (for both townhouses). Therefore, I’m looking to borrow $700,000 as a construction loan for 1 year while the build happens, then repay the full amount after the sale after 1 year.
    Can I get approval for this $700,000 loan based solely (or the majority) on the value of the land and/or the potential value of the 2 completed townhouses? Or will my income always come into the assessment for the loan?

  • Hi Ben,
    Your project falls in between residential and commercial from the point of view of the banks. It would tend to be more in the residential department which relies on your income to confirm you can afford the loan.

    If you have sufficient equity we could get a small development loan. FYI the major banks are not interested in development loans at the moment so if you can get the loan approved as a home loan you’ll find it much easier and cheaper. https://www.homeloanexperts.com.au/commercial-property-loan/residential-development-loan/

  • Fogler

    Hi, I bought a piece of land at $600,000 and my bank valued it at $550,000. I want to construct now so will my bank use the lower valuation?

  • Hey there, your bank will use the new valuation if it has been over 3 months since the last valuation.

  • Stephanie Lindsay

    I purchased land for $285,000 paying 10% deposit on purchase of $28,500… My land is still not registered and it has gone up in value by at least $80,000 i have been advised. I will get a proper valuation once it is registered. However what i want to know is, if it has gone up in value $80,000 but the time it is registered, can i use some of the equity to build a $300,000 home on the land???

  • Hi Stephanie,
    Yes if the land has gone up in value then you can rely on the increased valuation to enable you to borrow more when you build. Assuming of course that your income can support it. This is similar to the lending policy for off the plan units https://www.homeloanexperts.com.au/property-types/off-the-plan-units/ where some of our lenders will use the valuation not the purchase price to work out how much you can borrow as long as it is some time between buying and settlement.

    Look at other blocks of land sold recently in the same sub-division as they are the most comparable sales and can let you know accurately what your land is now worth.

    We can get valuations with more than one lender and can then proceed with the lender that has the most favourable valuation https://www.homeloanexperts.com.au/home-loan-documents/free-upfront-valuation-report/

  • Jesse

    If we purchased land totaling 38,000.00 and paid 4,000.00 down on it can the land loan be rolled into a construction loan and the value of the land count as equity? The goal is to build a 160,000 house + roll in the 32,000 left to pay on the land in the loan. The question is would we have to pay money out of pocket on the construction loan? Or would the equity from our already partially owned land loan (because we still owe money to the bank) be enough?

  • Jesse

    If we purchased land totaling 38,000.00 and paid 4,000.00 down on it can the land loan be rolled into a construction loan and the value of the land count as equity? The goal is to build a 160,000 house + roll in the 32,000 left to pay on the land in the loan. The question is would we have to pay money out of pocket on the construction loan? Or would the equity from our already partially owned land loan (because we still owe money to the bank) be enough?

  • Hi Jesse,

    You’d need to contribute a deposit for construction as well. $4,000 only wouldn’t be sufficient. The possible exception is if you receive a large first home grant.

    Note that we have a minimum loan size of $300,000. However a local mortgage broker should be able to help you.

  • Jesse

    So for instance if the loan is for 200,000 dollar we would still need to pay 16,000 more for the total of 20,000 down on the home loan? The land only counts at 4,000 dollars equity?

  • Yes it counts as $4,000 as that is how much you have put in as a deposit.

  • Owner Builder

    Hi Folks,

    I have a vacant block of land that has recently been valued at $800K. We owe $340K. We would like to owner build our home on this land. we need $350K on top of our current savings to commence our project.

    Based on the amount needed can you please let me know whether;

    1) The banks would be able to help with a construction loan
    2) Would the lender required the Owner builder to provide a detailed costs breakdown showing all quotes?
    3) what would be the typical turnaround time from the start of the process to the time the bank/lender would lend you the money

  • Hi OB

    1. Some of them can assist with this. There are also non-bank lenders an possibilities.
    2. If we go for a construction loan then yes this is what would be needed. If we did a cash out equity release (more difficult to approve, but easier for you) then this wouldn’t be needed.
    3. It depends on the approach. The big delay is with getting the required documents.

    Important: Do not start construction until you have formal loan approval. Once you’ve started then there may no lenders who will consider your application.

    If you’d like to make this simple, easy and cheap then I’d consider borrowing 80% on the land alone and borrowing the rest on a friend or family member’s property. Once construction is complete then we can increase your loan to pay them back. Note that lenders don’t like to release equity from vacant land however we can get this approved as an exception to policy assuming you meet all other criteria. If you;d like our help then complete this form https://www.homeloanexperts.com.au/free-quote/

  • Aidan Mullins

    I want to buy land. It’s $25,000 then build a house as soon as I can. If I pay the full $25,000 for land will I need much of a deposit to build for $250,000 – $260,000? What is my best option?

  • Hi Aiden
    Potentially yes you wont need to put in any more funds. Banks can lend up to 95% of the land value plus cost of construction so on that basis you may be ok.
    However the location may be a problem for some lenders which can cause them to limit your loan to 80% of the value, in which case you’d need more money.

  • Alison

    Hi there, I’m not sure if I’m on the correct part of your forum… however, we have a property that we currently live in that would give us about a 60% increase in return if we sold. We used some of the equity to purchase an investment property. If we want to buy land and build a new primary residence, are we able to sell our current property and keep our investment so that we can access the cash pool which would be a result of selling, even though we used the equity to buy the investment? Or will we need to sell the investment as well as our current property? Hope this isn’t too confusing! Thank you.

  • Hi Alison,

    It sounds like you got a loan on your home to use towards buying an investment property? If your investment property has gone up in value then we can refinance it and move the investment loan to be 100% on your investment property. That way when you sell your home you keep as much money as possible and you retain your negative gearing benefits.

    If you’d like our help to refinance your loan then please contact us here https://www.homeloanexperts.com.au/free-quote/

    Note that for tax advice you should talk to an accountant. We aren’t qualified to give tax advice.

  • Paul E

    Hello. I am going to Saudi Arabia soon and I own land and want to build there. I went with CBA for a building loan but they said they don’t accept Riyal. I just need 80% finance. Help needed please.

  • Hey Paul E
    We can help you with this so please call 1300 889 743 or simply complete our free online application form and we will contact you instead:
    https://www.homeloanexperts.com.au/free-quote/

  • Chris

    We are moving to Australia from U.K. I am wanting to purchase land for 200000 aud outright but will not be able to fund the Build fully. What I am asking is as I will be new into country how long will I have to wait to be able to borrow from banks or will they let me borrow straight away on the land

  • Hello Chris,
    You may need approval from the Foreign Investment Review Board (FIRB), depending on your circumstances (what visa you’re on, who you’re buying with, etc.). You should be good to borrow once you get FIRB approval. If this won’t be required, you can borrow straight away. Please check out this page to see if you require approval or not:
    https://www.homeloanexperts.com.au/non-resident-mortgages/firb-approval/

  • ChrisM

    Hi we are looking at buying land for $260,000. The land is is valued around $330,000. The house will cost around $250,000 and we will have $40,000 from the sale of current house to pit towards it. Can the equity in land be used to help fund the building construction?

  • Hi ChrisM,
    Yes, you can use the equity you hold in the land to help fund the construction. Some lenders can consider up to 80% of the equity in the land, and you’ll need to provide the lender with a valuation of the land at your own cost and mention how long ago you purchased it. If you have a valuation already, lenders may still require another valuation depending on how recently it was done.

  • raj

    Hi, I am looking build 2 townhouses on my existing land ( existing house to be demolished). Land value is 1mil and loan at the moment is $400000. Looking to borrow $750000 for new construction.
    We are going to live in one property n rent out another. Do i need to apply for owner occupier loan or investor loan?

  • Hi Raj
    Good question! It’s a grey area and different lenders assess this in different ways. With some lenders we can get you owner occupied construction loan pricing and with others they would split the loan to be 50% home loan and 50% investment loan.
    We would try to choose a lender that would:
    – Give home loan pricing
    – Is great with construction (i.e. no hassles)
    – Accepts a duplex as security
    I’ll email you and cc one of our construction specialists. If you’d like their help just email them back with your contact details.

  • Nicole Bradbury

    We bought a block in Weir Views its 468sqm bought for $129000 current loan on it $111,500 we spoke to a real estate agent they said that blocks our size now and titled are selling from between $200,000 to $230,000 however that is their opinion but we have yet to get a proper appraisal done. If this be true can we use this equity in our block of land to finance a construction loan?

  • Hi Nicole,
    Yes if your block has gone up in value then you can use the equity to fund a construction loan without needing to contribute any more cash of your own. Well done on buying a well performing property!
    The lender will use the current value of the land plus the cost of construction as the on completion value of the house you plan to build. E.g. Land value $200,000 and construction cost $300,000 = $500,000 on completion value. Assuming you borrow 95% + LMI then they would lend you a maximum of $475,000 + LMI. Less the $111,500 you owe = $363,500 available for construction. As this is more than is needed you would reduce the loan to be less than 95% so that you don’t pay too high an LMI premium.
    In some cases we organise a valuation from more than one bank and then we proceed with the one with the best valuation.