Beginner's guide to buying land and building in Sandringham

A construction loan covers both the land purchase and the cost of building your home, with funds released in stages as the build progresses.

If you've found suitable land in Sandringham and want to build rather than buy established, the funding works differently to a standard home loan. You're not borrowing a lump sum upfront. Instead, the lender approves a total loan amount, pays for the land at settlement, then releases the remaining funds progressively as your builder reaches specific milestones. You only pay interest on the amount drawn down so far, which keeps costs lower during construction. Once the build is complete, the loan converts to a standard home loan with principal and interest repayments.

The structure gives you control over timing and design, but it does require more documentation than a typical purchase, and you'll need council approval before the lender releases construction funds.

How the progressive drawdown process works

Funds are released in instalments as your builder completes each stage, typically five or six draws across the build. The lender arranges a progress inspection before releasing each payment, which confirms the work matches the stage your builder has invoiced for. Common stages include slab down, frame up, lock-up, fixing, and practical completion. Your builder submits an invoice, the lender sends an inspector, and once approved, the funds go directly to the builder.

Between drawdowns, you're only charged interest on what's been paid out so far. If $150,000 has been drawn for land and slab, that's the amount generating interest, not the full loan amount. Repayments during construction are usually interest-only, which keeps them manageable while you're still covering rent or other housing costs. Once the build finishes and you move in, the loan switches to standard principal and interest repayments unless you've arranged otherwise.

Lenders do charge a progressive drawing fee to cover the cost of inspections and administration, usually a few hundred dollars per draw. It's a separate cost to factor in, but it's the trade-off for releasing funds in stages rather than all at once.

What lenders want to see before approving land and construction finance

You'll need a fixed price building contract from a registered builder, along with council approval or at least evidence that your development application is well progressed. Lenders won't release construction funds without council sign-off, so if you're still waiting on that, the loan can be pre-approved but won't settle until the paperwork is finalised. The contract needs to include a clear progress payment schedule that matches the drawdown stages, and most lenders require you to commence building within a set period from the disclosure date, usually six or twelve months.

Your deposit needs to cover both the land and the construction cost. Most lenders work on an 80% loan-to-value ratio for the total project, so if you're buying land for $600,000 and building for $700,000, you'd need a 20% deposit on the combined $1.3 million, which is $260,000, plus another $25,000 to $35,000 for settlement costs, including stamp duty on the land. If you're using equity from an existing property instead of cash savings, that can form part or all of the deposit, depending on how much usable equity you have.

Building near the foreshore or in heritage overlays

Sandringham's coastal location and heritage character mean some blocks come with planning overlays that affect what you can build and how long council approval takes. If your land sits within a heritage overlay or close to the foreshore, expect the development application process to take longer and involve more detailed design requirements. That doesn't stop you from getting finance approved, but it does mean your lender will want to see council approval confirmed before they'll release construction funds.

Consider a buyer purchasing a block two streets back from the beach in the heritage precinct. The land costs $650,000, and the custom design for a two-storey family home comes in at $850,000. Council approval takes four months instead of the usual six weeks due to heritage design guidelines. The buyer arranges pre-approval for the full $1.5 million, but the construction drawdowns don't start until council signs off. Once approved, the build takes eleven months, with six progress payments released as each stage is completed. During construction, the buyer pays interest only on the drawn amount, which starts at $650,000 for the land and increases with each stage. After moving in, the loan converts to a standard home loan with principal and interest repayments.

How the loan switches from construction to permanent

Once your builder reaches practical completion and you've had the final inspection, the loan converts from construction mode to a standard home loan. The interest-only period ends unless you've specifically structured ongoing interest-only repayments as part of your loan, and you start paying down the principal. The interest rate may also change at this point if you've been on a construction-specific rate during the build, though many lenders now offer the same rate for both phases.

The conversion happens automatically once the lender receives the final drawdown request and confirms the build is complete. You don't need to reapply or go through another approval process. The loan simply shifts from progressive drawdown to a single balance with regular monthly repayments. If you've been renting during the build, this is usually the point where those costs drop off and your repayment becomes your main housing expense.

Fixed price contracts and cost plus structures

Most lenders will only approve construction finance if you're building under a fixed price building contract, which locks in the total cost and protects you from budget blowouts. A fixed price contract also makes it easier for the lender to assess risk, because they know exactly how much the project will cost and can confirm your borrowing capacity covers it.

Some custom builders offer cost plus contracts, where you pay the actual cost of materials and labour plus a margin. These give you more flexibility on design changes during the build, but they're harder to finance because the final cost isn't locked in. If you're set on a cost plus arrangement, expect to need a larger deposit or accept a higher interest rate, and some lenders won't consider it at all. Owner builder finance is even more restricted, with only a handful of lenders willing to fund it and usually at higher rates or lower loan-to-value ratios.

For most buyers building a family home in Sandringham, a fixed price contract with a registered builder is the most straightforward path. It gives you certainty on cost, timeline, and repayments, and it keeps the approval process moving without added complexity.

Timing the land purchase and the build start

You can settle on the land before construction starts, but that means you'll be paying interest on the land component while you're finalising council approval and preparing to build. Some buyers prefer to delay settlement until council approval is confirmed and the builder is ready to start, which avoids paying interest on the land for months before construction begins. The timing depends on how confident you are that approvals will come through and whether the vendor is willing to offer a longer settlement period.

If you're buying a house and land package from a developer, the land and construction are usually structured as a single contract with settlement timed to match the build start. That removes the timing risk, but it also means you're working with the developer's preferred builder and design options rather than a fully custom build. The trade-off is convenience and certainty versus control and customisation.

For buyers working with their own builder on a vacant block, settling the land first gives you ownership and removes the risk of the vendor pulling out, but it does mean you're paying interest from day one. If council approval is already confirmed and the builder is ready to start within a month or two, that's usually manageable. If approvals are still uncertain, it's worth negotiating a longer settlement period to avoid paying interest on land you're not yet building on.

Call one of our team or book an appointment at a time that works for you. We'll walk through your build timeline, confirm what documentation you'll need, and structure the loan around your project and your family's cash flow.

Frequently Asked Questions