Vacant Land Loans

Looking to purchase a piece of vacant land and need home loan? We introduce the key things to know about vacant land loans in Australia.

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, updated on August 7th, 2023       

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Got your eye on a block of land to build your dream home on? This article introduces vacant land loans in Australia. We cover why lenders treat them as risky, variables that may improve your financing options, how to compare land loans, and more FAQs.

What is a vacant land loan?

A vacant land loan is used to finance the purchase of a block of land that you plan to build a property on.

Generally, it’s more difficult to get a vacant land loan compared to a home mortgage or construction loan.

From a lender’s point of view, land loans are considered riskier.

This is because the price of vacant land is more prone to fluctuation than an existing property. Empty blocks can also be harder to sell than a house.

These things make it difficult for a lender to recoup the loan if a borrower defaults. As such, vacant land loans can be trickier to secure and interest rates tend to be higher than mortgage or construction loans.

How do you compare vacant land loans between lenders?

When comparing vacant land loans, consider the following:

  • Minimum deposit the lender requires

As a general rule, the deposit lenders require for:

Vacant land up to 11 hectares: Most lenders will accept a 5% deposit plus stamp duty – also known as transfer duty.

Vacant land over 11 hectares: Most lenders require a 20% deposit plus stamp duty.

  • Comparison interest rate

Two interest rates are usually advertised on a vacant land loan: the nominal rate and the comparison rate.

The interest rate is the lower of the two and it only reflects how much interest you’ll pay on the loan.

The comparison rate is higher because it combines the interest rate plus fees and charges that come with the loan. The comparison rate reflects the full cost so use this rate when comparing loan products.

  • Fees associated with fast-tracking repayments

If you plan to pay your loan off early,  check if you can make additional payments and pay off the loan early without a fee.

  • Redraw options

If you want to access extra principal repayments you’ve made, choose a loan with redraw options. Check the fees associated with accessing your repayments.

  • Loan establishment fees

These can range from $0 – $700 depending on the lender.

We’ve made it easy to compare your options from Australia’s most trusted lenders with our vacant land loan comparison tool.

What is the difference between vacant land loans vs construction loans?

If you want to build your home, you might be wondering what the difference is between vacant land loans vs construction loans?

There are a few key differences.

  • Construction loans have a deadline (usually 1 – 3 years) by which the house needs to be built. Vacant land loans don’t have this time constraint so there’s no pressure to move quickly with construction.
  • Funds for a vacant land loan are received in a lump sum while funds for construction loans are progressively drawn down during the course of construction.
  • A construction loan takes into account the cost of the home and land. A vacant land loan is based on the block only.

Which one is right for you?

Let’s say you’ve got your eye on a piece of land for your dream home. However, you know it’s going to be at least a few years before you can afford to start building.

A vacant land loan is the best choice in this scenario. You’ll be able to secure the land with no pressure to build until you’re ready.

Top 4 tips for getting your land loan application approved

Have the full deposit saved based on land size

The size of the block you want to buy will determine the size of the deposit you need. Check our basic guide further along to understand how much you need to save for a deposit. You may be able to use equity of your existing property to minimise the cash deposit.

Saving a fixed amount every week, fortnight or month demonstrates to the lender your discipline to save. This can increase your chances of being approved.

Lenders prefer registered to unregistered land

Registered land is when subdivision has occurred, the block is registered with land titles and is ready to build on.

Road infrastructure is completed and services, like electricity, are connected. 

On the other hand, unregistered land is not ready to build on. Council still needs to provide building approval and a certificate of title is not yet available.

Registered land is more favourable from a lenders perspective.

Present a detailed plan for developing the land

Do you plan to build your own home, an investment property, or keep the land vacant?

Present a detailed plan and timeline for how you want to develop the land. Doing so may increase your chances of loan approval.

Residential land is considered less risky

Consider location and zoning as some lenders may decline your application based on location.

Land located in a city or regional centre with established infrastructure and sealed roads is more appealing to lenders than land in remote locations without proper access.

Land zoned for residential use is also considered less risky for lenders.

What else you need to know about vacant land loans

What costs are associated with buying land?

In addition to your loan repayments and interest, other costs may include:

  • Loan establishment fee. Usually $0 – $700 depending on the lender.
  • Site surveys. For example, assessing soil quality and drainage.
  • Transfer duty (also known as stamp duty) which varies from state to state.
How much stamp duty do I need to pay on a block of land?

You should visit stamp duty calculators for each state to workout how much stamp duty you need to pay on a block of land.

Are there incentives for building on vacant land?

Australian Government’s HomeBuilder Scheme offers $25,000 and $15,000 grants to eligible owner-occupiers (including first home buyers) to build a new home or substantially renovate an existing home.

While the grant doesn’t apply to purchase of land it does apply to the construction of your home on the land.

Find out more about the HomeBuilder Scheme.

What do I need to apply for a vacant land loan?

The main documents you’ll need when applying for a loan include:

  • Proof of identification; birth certificate, passport, drivers licence.
  • Proof of income; payslips or / and tax returns.
  • Expenses; a detailed account of your monthly expenses.
  • Assets; an account of your current assets, such as your car, and savings.
  • Liabilities; an account of your outstanding debts, such as credit cards.

This isn’t an exhaustive list as requirements can vary between lenders.

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