Land loans: How to finance a vacant land purchase

You can purchase a block of vacant land with a land loan, but you'll need a construction loan to cover building the property.

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Richard Whitten

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Key takeaways

  • Vacant land loans allow you to purchase a block of land without the immediate requirement to build on it.
  • Expect lower loan-to-value ratios often requiring a larger deposit than a standard home loan.
  • Lenders assess land size location registration and your building plans influencing loan approval.

What is a vacant land loan?

A vacant land loan allows you to take out finance to purchase an empty plot of land in order to build on later.

It's different to the usual method of taking out a house and land package, where the loan would cover the land plus the cost of construction.

With a vacant land purchase, you buy the land and then arrange the construction separately.

Although it's harder to find a vacant land loan than it is to borrow money to purchase a house and land package, many lenders now offer vacant land loans to help you snap up that perfect piece of Australia.

The benefits and downsides of a vacant land loan

Benefits

  • Purchase land. Regular home loans don't usually allow you to purchase land without a home on it but these special loan products do.
  • You don't have to build straight away. Unlike a construction loan, which typically requires you to build a home within 12 months (or perhaps up to 3 years), vacant land loans have no such requirement.

Downsides

  • Lower LVR. Because of the conservative approach lenders take towards vacant land loans, many will offer a low maximum LVR. As a result, you may need to save more for a deposit before you will be approved for a loan.
  • Second loan required for building. You'll need a separate loan to cover the actual home building.

How to compare vacant land loans

Consider all of the following features when comparing the advantages and disadvantages of a variety of vacant land loans:

  • Rate. The interest rate is a hugely important feature on any home loan because it plays a big role in determining how much you will have to repay over the life of the loan. However, the interest rate doesn't take any of a loan's fees into account, so make sure to look at the comparison rate as well.
  • Fees. Some loans may have hidden fees so always ensure you're fully aware of any fees that apply to your vacant land loan.
  • LVR (loan to value ratio). As vacant land is harder for a lender to sell in the event that a borrower defaults, many lenders take quite a conservative approach when offering land loans. As a result, you may find that some lenders offer a lower maximum LVR than you would expect, so compare this feature before you apply.
  • Repayment options. Can you make additional repayments at any time? Can you pay the loan off early without incurring a fee? Can you choose a repayment schedule (weekly, fortnightly or monthly) to suit your budget?
  • Other features. It also makes good financial sense to look at the other features a lender may provide, including redraw facilities, offset accounts and loan split options.

Can I buy any kind of land with a land loan?

Lenders have specific criteria when lending to borrowers looking for a land loan. Most of the time, you can't just buy any piece of empty land to qualify for a land loan. When a lender loans you money, it is taking a risk. The property or land you are buying secures the loan, meaning the lender can theoretically sell the asset if you can't repay the loan.

So if you're buying a piece of vacant land, the size, location and quality of the land matters.

Factors to consider when buying land with a land loan

  • Farm or home? If you're planning to earn money on the land (by running a farm, for example) then you might not qualify for a land loan. Your lender may require the land to be used for a home. But you might be able to run a small hobby farm while living on the land.
  • Registered land. Vacant land that has been released by the government for building is called greenfield land. Before you can build on this land it needs to be connected to services and roads and it needs to be registered with the local council. Lenders probably won't approve your loan until the block is registered.
  • Are you building on the land? Some lenders require you to have a plan in place to build a home on the land and may require you to start building within a certain timeframe.
  • Size and location. A block of land in a major city suburb is going to be a lower risk to a lender than a block in the middle of nowhere. And a very large block of land is going to be a bigger risk, generally, than a smaller block. This doesn't mean you can't get a land loan in a rural area, but your lender may require a larger deposit.

Which lenders offer vacant land loans?

There are a range of lenders that offer loans for vacant land. These include:

  • AMP. AMP's Land Loan allows you to purchase vacant land and comes with a redraw facility and more.
  • ANZ. One of Australia's biggest banks, ANZ offers land loans with various options.
  • Gateway CU. Gateway offers its land loan with a choice of fixed or variable rates.

Land loans vs construction loans

You can use a land loan to purchase the actual land you are building on and that's it. A construction loan covers the building of the house on the land. A land loan gives you the money you need to fund the purchase at settlement, whereas a construction loan releases funds in stages as your construction progresses.

Land loans sometimes have a set time period by which you need to finish construction; and a construction loan definitely will have a set time period.

If you have purchased land with a land loan and then need more money to fund the building of your home, you will need a separate construction loan.

Example: James buys a block of land

James and his young family are currently renting a house in the suburbs but they would like to own a home in a neighbouring suburb one day. Buying a house in that suburb is currently out of James' reach financially, but when he stumbles across a cheap block of land he knows it's perfect for him. He considers taking out a construction loan to purchase the property, but he knows he probably won't be able to afford to build his dream home in the next few years.

With this in mind, he approaches his bank about a vacant land loan. He gets a competitive variable rate and is able to borrow up to 90% of the land value, allowing him to purchase the land at a price he can afford with a view to one day building the perfect home for his family.

Frequently asked questions about vacant land loans

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Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

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10 Responses

    Linda24's avatar
    Linda24November 21, 2023

    Can I earn interest on a 10% deposit I paid 6 months ago on a block of land under development, due for completion in another 14 months?

      Sarah Megginson's headshotFinder
      SarahNovember 21, 2023Finder

      If you have already paid the deposit, you don’t have access to the funds any more so you can’t earn any interest. In these instances the funds are often placed in a trust, and the interest earned is split between the buyer and seller. It might be worth checking your contract to see what your arrangement is?

      Hope this helps!

    Little Bo Peep's avatar
    LittleOctober 18, 2019

    I only need a small amount (50K) to borrow to buy a vacant block of land. With the intention to pay it off quickly. I’ve heard that a line of credit is an option as most lenders will not consider a small loan for land purchase. What would you recommend?

      Nikki Angco's avatar
      NikkiOctober 19, 2019

      Hi Little Bo Peep,

      Thanks for your comment. It’s good to know that you are looking to buy land.

      A line of credit loan usually allows you to borrow up to 80% of the value of your equity, and this amount is given to you as a credit limit.

      Ultimately, you’ll have to reach out to the bank to see if they have the type of option they can offer for you. As a friendly reminder, carefully review the eligibility criteria of the loan before applying to increase your chances of approval. Read up on the terms and conditions and product disclosure statement and contact the bank should you need any clarifications about the policy. It is also a good idea to speak to a mortgage broker to get professional, personalized advice.
      ​
      Mortgage brokers are professionals who sort through hundreds of loans in the market so borrowers don’t have to. A mortgage broker’s service is usually free because they earn a commission from the lender. A good mortgage broker can make life easier and they can help borrowers in difficult circumstances to find a home loan that matches their situation.

      Hope this helps and feel free to reach out to us again for further assistance.

      Best,
      Nikki

    Mon's avatar
    MonAugust 5, 2019

    I work full-time. I want to buy some land. I’m having trouble getting my deposit together. I know I can afford the repayments easily. Is there anything I could do to get a loan for land with a very small deposit?

      Jeni's avatarFinder
      JeniAugust 6, 2019Finder

      Hi Mon,

      Thank you for getting in touch with Finder.

      Yes, it is possible to get a low deposit vacant land home loan. Our comparison table above provides a list of lenders with a max LVR of 90% or 95% which means that you would only need to have a deposit of either 10% or 5% of the vacant land’s value. I also suggest that you seek help from a mortgage broker since you’re looking for providers that offer the cheapest rate and low deposit home loans.

      I hope this helps.

      Thank you and have a wonderful day!

      Cheers,
      Jeni

    Ben's avatar
    BenNovember 12, 2017

    I want to purchase a block of land with a small deposit I don’t have good credit history I have a full time job good pay I am paying off my bills please let me know what I can do cheers Ben

      Arnold's avatar
      ArnoldNovember 13, 2017

      Hi Ben,

      Thanks for your inquiry.

      It would be difficult to get approved for a loan if you have a poor credit score. In most cases, lenders require good to excellent credit. There are quite a few that will accept applications from people with bad credit however this can cost higher interest rates and poorer terms. Thus, it is advisable to improve your credit before you borrow.

      There are lenders that may be able to consider you for a home loan with bad credit. You can press the “Go to site” button when you are ready, to proceed with your application. If the lenders here doesn’t work for you, you may also speak with a mortgage broker to in order to get a professional assessment and to make sure everything is taken into account before you apply.

      Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you. You can also contact the provider if you have specific questions.

      Hope this information helps

      Cheers,
      Arnold

    galina's avatar
    galinaJune 1, 2016

    what interest % on vacant land loan?
    How much i have to pay first deposit?

      Marc Terrano's headshotFinder
      MarcJune 1, 2016Finder

      Hi Galina,

      Thanks for the question.

      This will depend on the lender and the particular product. You might wish to contact a mortgage broker to find out what interest rates and deposit requirements would be for your particular situation.

      I hope this helps,
      Marc

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