Good sites don’t hang around. The corner block with a duplex approval, the old house on a wide lot that’s perfect for three townhouses, the vacant land a developer has to sell before the end of the month. Land purchase finance for builders is about being the buyer who can actually settle, while everyone else waits on their bank.
When do builders need land finance fast?
Most land deals get urgent for one of these reasons:
- Auctions. The hammer falls and you’re unconditional. Deposit today, settlement in 30 to 60 days, no finance clause.
- Short settlements. A vendor who needs out fast will often take a lower price from a buyer who can settle in two weeks.
- Bank delays. The bank approved in principle, then asked for more documents two weeks before settlement.
- Off market deals. An agent calls with a site before it’s advertised, and the vendor wants a quick, clean contract.
- Buying before selling. You want the new site but your capital is tied up in a house that hasn’t sold yet.
Paying the deposit
The deposit is often the first hurdle. It’s due on exchange or on auction day, and it usually comes from equity rather than cash in the bank.
A fast second mortgage over your home or an investment property is the most common way to fund a deposit. It sits behind your existing loan, doesn’t disturb it, and can be arranged before auction day so you can bid knowing the money’s there.
Settling on the land
For settlement itself, there are a few options depending on what you own:
- Existing property plus the new land. Lenders can often take security over both the land you’re buying (at its current value) and another property you own, so the combined equity covers the purchase.
- A debt free property. If you own an investment property or commercial property outright, a fast first mortgage over it can fund the whole purchase.
- A bridge while you sell. If you’re selling another property to fund the land, business bridging loans cover the gap between the two settlements.
The key rule: security is based on what the properties are worth today. The land is valued as land, not on what the finished houses might sell for.
Don’t forget the costs around settlement
The purchase price is only part of the bill. Stamp duty, legal fees, any adjustments for council and water rates, and the costs of the loan itself all need to be funded on or before settlement. Many builders borrow enough to cover these too, plus holding costs like rates and insurance for the months before the build starts. Your conveyancer can give you an estimate of the settlement figure early, so you can borrow the right amount.
Then comes the build
Buying the land and funding the build are two separate stages. Once you own the site, you’ll need a plan for construction costs, which could be a bank construction loan, further private funding secured against your other equity, or presales in a larger project. If you’re buying for a small subdivision, see small subdivision finance for how that stage usually works.
Example: an auction on a duplex site
Hypothetical example only.
A builder in Canberra has his eye on a wide block with an old house, zoned for a dual occupancy. It’s going to auction in two weeks, and he wants to bid unconditionally.
He owns his home with a small mortgage and an investment townhouse with no debt. Before auction day, his lending specialist arranges a loan secured against the townhouse and the site he’s buying, with the deposit ready to go. He wins the auction, pays the deposit on the day and settles six weeks later. He then refinances to a bank construction loan once plans are finalised.
What to have ready before auction or exchange
- The contract or auction listing and the expected settlement date
- Details of the property you’re using as security, and any loan on it
- A rough plan for the site: hold, subdivide, build to sell or build to keep
- Your exit plan for the short term loan
- Photo ID for each borrower and guarantor
Sort finance before you bid or sign. The weeks after exchange are the worst time to discover a problem.
Key facts: land purchase finance for builders
- Loan size: $20,000 to $5 million
- Security: Existing property equity, plus the land being bought at its current value in many cases
- Speed: As little as 24 hours in some cases; typically a few days once valuation and documents are in
- Term: Typically 1 to 12 months
- Financials: Not needed; bad credit considered
- Suits: Builders buying a house site, duplex or townhouse block, or small subdivision land
Common mistakes when buying land
- Bidding without funds lined up. An unconditional contract with no money behind it is a serious risk.
- Forgetting stamp duty and costs. Duty, legals and adjustments all need to be funded at settlement.
- Assuming the bank will fund the build. Talk to your construction lender early.
- A vague exit. Know whether you’ll refinance, sell or develop before the term runs out. Our guide to bridging finance explained for builders covers exit planning in detail.
Lock in the site
If a good block is on the table, don’t lose it to a slow approval. Check your options in about 60 seconds. It won’t affect your credit score, and we’ll tell you quickly if we can help.
