Can I get a loan to buy land in Australia?

Applying for a land loan can be somewhat different from applying for a home loan, not just because fewer lenders offer these loans but also because the market value of land is more likely to change frequently. Further, the size of the land being purchased can also impact lenders’ approval decisions, and they may not let you borrow money to buy land above a certain size. Further, you may get a land loan more easily if you are buying registered land with established road and utility connections and council approvals rather than unregistered land.

Remember that lenders tend to see land loans as riskier propositions than regular home loans, and you may have to work hard to convince them not just about your ability to repay but also your homeownership ambitions. Telling a lender about your plans or timeline for building a house on the land, for instance, may help you access larger loans. Also, if you can pay at least 20 per cent of the land’s value as a deposit, lenders are less likely to ask you to pay Lender’s Mortgage Insurance (LMI), which can bring down your overall loan costs as well.

Like home loans, lenders describe land loans using the Loan to Value Ratio (LVR), calculated as the percentage of the land’s worth equalling the loan amount. The typical industry standard is an 80 per cent LVR loan, but some lenders may offer you land loans of up to 95 per cent if you are either an extremely low-risk borrower with a well-defined purpose for acquiring the land -- or if you agree to pay LMI.  

Suppose you are buying the land to build your first home. In that case, you may qualify for the Australian government’s First Home Guarantee and pay just a five per cent deposit towards your land loan, with the National Housing Finance and Investment Corporation (NHFIC) guaranteeing the loan. Getting a family member to guarantee your loan can also help you borrow more, but they should be comfortable taking the risk. 

 Irrespective of the LVR available to you, remember that lenders may not approve a loan for buying more than a specified land size. Further, unlike home loans, land loans may require you to pay more interest even if you are certifiably creditworthy and can pay a sufficient deposit, as lenders may not be able to sell the land as easily as a home under foreclosure. 

You could consider comparing land loans and construction loans offered by different lenders, with construction loans covering the cost of purchasing the land as well. Alternatively, investing in a house and land package offered by the same seller may also help you get a land loan sooner.