How to find the best financing option to purchase Australian land with a vacant land home loan
If you’ve got your eye on a block of land that you’d love to buy and build a house on ‘one day’, a vacant land loan could offer the funds you need. Although it’s typically harder to find a vacant land loan than it is to borrow money to purchase a house and land package, many lenders are now offering vacant land loans to help you snap up that perfect piece of Australia.
How does a vacant land home loan work?
As the name implies, these loans can be used to purchase vacant blocks of land. The land must typically be non-income producing, while different lenders may impose different loan conditions depending on the size of the land you plan on buying. These special types of loan often take the place of home loans in this instance, because some lenders won’t allow you to take out a home loan if there is no habitable dwelling on the property you are buying.
In some ways a vacant land loan is similar to a construction loan, but the key difference is that construction loans place a time limit on when you must complete the building project on your property - this limit is usually set at between one and three years. With a vacant land loan, however, there are no time pressures attached in terms of when you need to start or finish construction.
James and his young family are currently renting a house in the suburbs but they would one day like to own a home in a neighbouring suburb. 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.
Which lenders offer vacant land home loans?
There are a range of lenders which 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.
- Gateway CU - Similar to AMP, Gateway offers their Land Loan. This comes with your choice of fixed or variable rates and more.
How to compare vacant land home loans
Consider all of the following features when comparing the advantages and disadvantages of a variety of vacant land home 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 home 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.
The benefits and considerations of a vacant land home loan
- 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 three years), vacant land loans have no such requirement.
- Refinance. You can also use one of these loans to refinance an existing vacant land home loan.
- Lower LVR. Because of the conservative approach lenders take towards vacant land home 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.
When would a vacant land home loan suit me?
There are many situations in which you could benefit from a vacant land home loan, all of which would obviously require you to be seeking finance to purchase a vacant block of land. For example, perhaps you’re building an investment portfolio for your retirement, or maybe you simply want to snap up a prime piece of land while it’s available and before someone else beats you to it. Of course, you may also plan to build your dream home on that land one day - you might just have to wait a few years until you can afford to do so.
Frequently asked questions about vacant land home loans
How much can I borrow for different block sizes?
This can vary greatly between lenders but, as a general rule, the larger the property the lower the LVR you will be able to borrow.
What will the lender assess before approving my loan?
The lender will assess factors such as the size of the land, where it is located, how easy it is to access and its access to services, the zoning of the land, whether you intend to build on it and whether you are planning on buying for personal or investment purposes.
What’s the difference between a vacant land loan and a construction loan?
With a construction loan, the lender will require you to build a home on the land within a certain time period, usually one to three years. No such requirement applies to vacant land loans.
What is the maximum LVR on a vacant land loan?
For the right borrower, some lenders will be willing to loan up to 97% LVR. However, many lenders take a much more conservative approach to vacant land home loans.