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.

  • shamesL

    Hi
    How is the construction loan LVR calculated , is on the final value or the land plus construction

  • Hi Shames
    It’s calculated on the lower of the two. So if the final value was $1,000,000 and the cost was $900,000 then the bank would calculate the LVR using $900,000.

  • Lauren

    Hello,
    I have a plot of land valued at 50k. Paid off and have deed.
    Before hand got approved for 150k zero down. Wanting a construction loan on the land to just build there. Does that mean they will loan me on top of the 150k to build or is that just considered a down payment on a construction loan?

  • Hi Lauren
    The bank would consider the value of your property to be $50,000 now and $200,000 on completion. On that basis they would lend you the $150,000 you need to build your house without the need for you to put in additional funds. If you need to borrow more than that then they may allow this. You can borrow up to 80% of the property value relatively easily ($160,000) and likely 90% or 95% if you meet stricter lending criteria ($180,000 – $190,000).

  • jeremy

    i used my land as collateral to build my home i have 2 acres of land but now want to add a trailer house to my land would that be a issue since the bank somewhat owns my land? Thank you.

  • Will

    Good evening. We put a $1,000 holding deposit on a block of land in Box Hill NSW in March last year. The land was $410,000. The stamp duty has been paid in full and also the 10% deposit to the developer. The balance is due when the land registers in 3rd quater 2018 and we have the money pay in full with NO finance at all – we wil own it outright. Currently the land is valued at around $480,000. We have been contacting builders for pricing and have budgeted for $340,000 – $360,000 total build cost. Is $340-$360k possible as equity to build our home? We can put down a 5% deposit on $360k easily. We are looking at a long term 5year fixed rate between under 5% and paying weekly. Thanks in advance ☺

  • Hi Will,
    Firstly please read this article https://www.homeloanexperts.com.au/home-loan-articles/construction-loan-tips/ as it has some good info for people planning to build. In particular don’t commence construction until your loan is approved as most lenders auto-decline your loan if you have started construction.
    We have a few options with finance.
    1. Get a construction loan where the bank progressively pays the builder (more paperwork but most lenders can assist)
    2. Get equity released and then you control when the builder is paid (easier, but less lenders available)
    The problem is that your requirement of a 5 years fixed rate doesn’t match well with a construction loan. Think of a fixed rate loan as an inflexible contract and so you can’t normally draw down the funds as you need them. There are only 2 or 3 lenders that allow a fixed rate with a construction loan and generally the fixed rates aren’t the best in market.
    So I’d say the best approach is:
    1. Wait until you have accepted a tender. Until then it’s too early to work on finance
    2. We can assess your options and see if your exact requirements can be met.
    3. If not then it’s likely best to be variable during construction then to fix when it’s complete.
    Also congrats on being good with your money! Looks like you’ve done well for yourself.

  • Will

    Hi there. Thank you for the swift and detailed response – much appreciated.

    I understand 100% :).

    As this will be the 2nd time we have built a home, it is the first time we have owned a block of land outright, so it would be nice to unlock equity if at all possible. I’m not sure if it is easier or harder to do compared to applying for a construction loan…

    I’ll wait to hear back from some of the builders we have contacted, but so far two builders have been kind enough to send designs and price guides between $322 – $337 – (includes Basix, site costs, all the goodies you expect etc etc). We have edited the designs a little to get another rough price without a proper tender. Once we are certain it is within a good budget, we will look at booking an appointment with one of them to edit it even further which may bring the price up to the $345k mark. Then we can get an official tender and work out finance.

    With the fixed rate, my apologies I didn’t write that properly. I was keen to look at a fixed rate once all stages of the build are complete and we are handed the keys, that we may be allowed to lock in a fixed rate once we settle in.

    Thanks you for the kind words. We finished building our first home in 2010 and sold in April 2016 which allowed us to buy a block outright. The plan was to have a much smaller home loan, but a larger house for our 3 children with an easy to maintain block of land. So far so good, but it is amazing to see banks tightening their lending standards compared to last year which is always a worry when it comes to applying for a home loan ;-)

  • It sounds like you are in a strong position so I expect you’ll be fine to get approved.
    Likely the best option is to apply with a lender who has excellent fixed rates that way when construction is finished you don’t need to change lenders to get a good fixed rate.
    I’ll email you and cc one of our mortgage brokers who is an expert in this area of lending. You can then save their details for later when you’re ready to apply.
    Best of luck with the quotes!

  • Will

    That’s great news and good advice ☺

    Thank you for passing on my details and for all of your help – I really do appreciate it a lot.

    Is there a page to leave positive feedback?
    Cheers,
    Will

  • Thank you Will that would be appreciated. You can leave positive feedback on either
    https://www.productreview.com.au/p/home-loan-experts.html
    https://www.facebook.com/HomeLoanExperts/
    https://goo.gl/maps/aAVxpWPHmst

  • Lee

    Hi I own a property the land value is 370k the remaining mortgage is 140k( depending on scenario I may pay the mortgage off before the construction loan) I would like to build 4 townhomes on the lot the total construction cost 1.2 million for 4 units.The lot next my lot sold it’s 4 units for 400-550k the current value is around 590k for each unit. Please advise on how to proceed to get a construction loan and my options thank you.

  • Hi Lee,
    You can borrow up to 80% of the total cost ($370k land value + $1.2m construction = $1.57m cost) which is a loan of $1.256m. After repaying your existing $140k loan that means you can borrow $1.116m more than you currently owe. If you have funds to pay off your current loan this means that you should be fine from a funds required point of view. A residential loan is best as it’s much cheaper than a commercial development loan however you need to show a good income to qualify for it.
    I’ll email you and cc one of our experts in construction loans who can assist you further.

  • Greg Sanders

    * Are you financially squeezed?
    * Do you seek funds to pay off credits and debts?
    * Do you seek finance to set up your own business?
    * Are you in need of private or business loans for various purposes?
    * Do you seek loans to carry out large projects?

    If you have any of the above problems, we can be of assistance to you but I want you to understand that we give out loans at the interest rate of 3%.

    * Borrow credits up to $900,000,000 USD.
    * Choose between 1 to 20 years to repay.
    * Choose between Monthly and Annual repayments Plan.
    * Flexible Loan Terms…
    Please if you are interested check back with us through this email address: standardkredits@hotmail.com

  • Greg Sanders

    * Are you financially squeezed?
    * Do you seek funds to pay off credits and debts?
    * Do you seek finance to set up your own business?
    * Are you in need of private or business loans for various purposes?
    * Do you seek loans to carry out large projects?

    If you have any of the above problems, we can be of assistance to you but I want you to understand that we give out loans at the interest rate of 3%.

    * Borrow credits up to $900,000,000 USD.
    * Choose between 1 to 20 years to repay.
    * Choose between Monthly and Annual repayments Plan….
    * Flexible Loan Terms.
    Please if you are interested check back with us through this email address: standardkredits@hotmail.com

  • Jennifer

    Good morning,

    My husband and I are considering our first home purchase. We have found 10 acres with an older double wide (2003). We are considering this purchase mainly for the land with established utilities and workshop/ in law buildings on the land. Our ultimate goal is to build on the land and either sell, tear down or rent the mobile home out. However, I’m not sure how soon we could financially do that. The purchase price is 220k and we have a small down payment on an FHA loan for 30 years. The land is currently valued at 1000/acre. Considering mobile homes don’t earn equity, is this a smart buy to achieve our goal or what should we consider?

  • Hi Jennifer,
    Judging by the terminology you are using you are in the USA. We’re Australian mortgage brokers and are unfamiliar with the policies in the US.

  • Anney

    If I have the option to do a residential or commercial construction/development, which would be easier to borrow? residential loan or commercial loan? for example 2 town house development (residential) or 4 town house development (commercial)?

  • Hi Anney
    If you can prove that you can afford the loan repayments (high income) then a residential loan is easier to qualify for.
    If you have a lot of equity but a low income then a commercial loan is easier to qualify for.
    A residential loan is much cheaper and faster so it’s always the preference.

  • Anney

    We have both.
    In this case, for a commercial loan via a trust or company. From the lender’s perspective, which would they likely to lend to, a trust (unit trust) or company in a Joint Venture structure. Thanks.

  • Hi Anney
    Either is fine however the devil is in the detail. If you have a complex JV structure then some lenders will not accept this for a residential loan but they are normally fine with multiple unit holders for a unit trust.
    This type of situation and questions that you are asking our too complex to be relied upon without knowing the full details of your situation. So I strongly recommend that you contact us or another mortgage broker to get a holistic recommendation.

  • Daniel

    If I purchase a block of land and want to build on it later and get the construction loan later, are there any rules around timeframes from a bank’s point of view whereby I have to build on it? Currently I only have a deposit to purchase vacant land (LVR already @ 95% including LMI) and was hoping to save up for a while or build up equity in the land to help get my construction finance down the track.
    Thanks

  • Robert

    Hello,
    We own our land outright (payed 160k) and are looking to obtain a construction loan using land equity. What are we looking at being able to borrow? Ideally our build will be around the 400k mark. What if any deposit would be required for the construction loan based on this build figure?

  • Hi Robert,
    Banks usually require 10% deposit for the construction, and if you own your land outright, then you can use its equity as your deposit. So, if the total value of land and construction is 560k, then you may be able to borrow 90% of the total and finance your construction. Call us on 1300 889 743 or complete our online enquiry form and speak with construction loan specialists.

  • Hi Daniel,
    Apologies for the late reply. If it’s a house and land package, then banks usually require you to start construction within 2 years. But if you want to do it separately then they shouldn’t have any issue with it.