4 Ways to Pay for Your New Build in Australia: The Complete Guide

Building a new home is exciting, but figuring out how to pay for it can feel overwhelming. If you choose the wrong finance strategy, you could end up paying far more than you need to. The good news is that there are four proven ways Australians finance a new build, whether you’re planning a custom home, a knockdown rebuild, an upgrade, or a home and land package.

This guide breaks down each loan type in simple terms so you can understand your options, avoid costly mistakes, and choose the best path for your situation.

One of our directors, Jas Singh, has also made a video on this topic, which you can watch below (this is not financial advice, please do your own research).

Why Your Finance Strategy Matters

Choosing the right loan affects:
• How much interest you pay
• Your cash flow during the build
• How quickly your construction progresses
• What approvals and documents you need
• Whether you can stay in your current home while the new one is built

Below are the four main ways Australians finance new home builds.

1. Construction Loans

A construction loan is the most common and flexible way to finance a new build in Australia.

How Construction Loans Work

A construction loan works on a drawdown system. Instead of receiving the entire loan amount upfront, the bank releases funds in stages as your builder completes each phase of the build.

The key advantage is that you only pay interest on the funds you’ve drawn, not the full loan amount. This keeps repayments much lower during construction.

Once your home is completed, the construction loan converts into a standard home loan with normal mortgage repayments.

Benefits of a Construction Loan

• Lower repayments while building
• Interest only charged on the amount used
• Structured, staged payments help keep builders accountable

Things to Consider

• You’ll need council approved plans and a fixed price building contract
• Banks only lend up to the contracted amount
• Any variations or surprises must be paid by you

Example

If your construction loan is $500,000 and you draw down $100,000 after the slab stage, you only pay interest on that $100,000 until the next stage.

2. Home and Land Package Loans

Home and land package loans are popular for new estates, first home buyers, and buyers who want price certainty.

How Home and Land Packages Work

Although they feel like one purchase, this type of build involves two loans:

1. A loan to purchase the land

2. A construction loan to build the home

During construction, you’ll pay full interest on the land loan and progressive interest on the construction portion.

Benefits of Home and Land Packages

• Stamp duty is paid only on the land, not the build
• Fixed price building contracts reduce financial surprises
• Often eligible for first home buyer grants and incentives

What to Watch Out For

• You start paying interest on the land loan immediately
• Repayments increase as building progresses
• Both loans merge into a single mortgage after completion

Example

Land cost: $700,000
Build cost: $600,000

You’ll begin paying mortgage repayments on the $700,000 land loan straight away. As construction progresses, your repayments gradually increase until both loans combine into one after completion.

3. Home Equity Loans

If you already own a property, a home equity loan can be a smart way to finance your new build without needing large cash savings.

How Home Equity Loans Work

Your lender allows you to borrow against the increased value of your current home. This borrowed amount can be used as your deposit or to fund construction costs.

Many homeowners set up a line of credit so they can draw down funds throughout the build.

Benefits of Using Home Equity

• No need for a large cash deposit
• Flexibility to cover unexpected building costs
• Often easier to access than a new standalone loan

Things to Consider

• Your total debt increases against your current home
• You may temporarily be paying two loans
• You may need to sell your existing home later to reduce debt

Example

If your home is worth $1,000,000 and your remaining mortgage is $300,000, you may be able to refinance up to 80 percent (or $800,000). This gives you access to around $500,000 for your new build.

4. Bridging Loans

A bridging loan is ideal if you want to build or buy your new home before selling your current one.

How Bridging Loans Work

The bank extends a short-term loan on top of your existing mortgage, giving you enough funds to complete your new build. You usually have 6 to 12 months to sell your current home. Once it sells, the sale proceeds pay down the bridging portion of the loan.

Benefits of a Bridging Loan

• Stay in your current home while the new one is being built
• No need to move twice or pay for temporary accommodation
• Less pressure to sell quickly for a lower price

Things to Consider

• Typically higher interest rates
• Harder to qualify, because lenders assess your peak debt
• Designed for short-term use

How to Choose the Best Finance Option

Choosing the right loan comes down to two main factors:
Do you already own a home?
Do you want to stay in that home while you build?

If you don’t own a home yet:

• Construction loan
• Home and land package loan

If you own an existing home:

• Home equity loan
• Bridging loan

Each option has pros and cons, so consider your timeline, borrowing power, budget, and risk tolerance.

Final Tip: Always Allow a Buffer

Building a home almost always involves delays or extra costs. Allow a contingency fund for:
• Interest changes
• Builder variations
• Weather delays
• Material price increases

A financial buffer will protect your project and reduce stress.

And remember, always speak with a qualified mortgage broker to understand which structure is right for your personal situation. This is general information only and not financial advice.

FAQs

• What is the best way to finance a new build in Australia?

  The best finance option depends on your situation. Most first home buyers use a construction loan or a home and land package loan. Existing homeowners often use equity from their current property or take out a bridging loan to avoid moving twice. The right option depends on your timeline, borrowing power, and whether you already own a home.

• How does a construction loan work?

  A construction loan is released in stages as your builder completes each part of the build. You only pay interest on the money you’ve drawn down, which keeps repayments lower during construction. Once the home is finished, the loan converts into a standard home loan.

• Do I pay stamp duty on a new build?

  If you’re building on vacant land or purchasing a home and land package, you only pay stamp duty on the land. This can save you thousands compared to buying an established home, where stamp duty applies to the entire purchase price.

• Can I use equity in my current home to build a new one?

  Yes. Many homeowners finance a new build using a home equity loan or line of credit. Your lender allows you to borrow against the value of your existing property, which you can then use for the deposit or construction costs.

• What is a bridging loan and when should I use one?

  A bridging loan is a short-term loan that allows you to build or buy your new home before selling your current one. It’s helpful if you want to avoid moving twice or renting during the build. Once you sell your old home, the proceeds pay down the bridging portion of the loan.

• Is a home and land package cheaper than building on my own block?

  Home and land packages often come with fixed price contracts and standard inclusions, which help keep costs predictable. You also only pay stamp duty on the land. However, buying your own block and organising your own builder may offer more flexibility.

• Do construction loans require a fixed price contract?

  Yes. Lenders typically require a signed fixed price building contract and council approved plans before approving a construction loan. This helps them assess the lending risk and ensures you know exactly what your build will cost.

• What happens if my build goes over budget?

  Banks only lend up to the agreed contract amount, so any variations or budget blowouts must be paid by you. This is why it’s essential to keep a financial buffer for unexpected costs.

• Can first home buyers access grants for a new build?

  In most states and territories, first home buyers may be eligible for government grants and stamp duty concessions when building a new home or buying a home and land package. Eligibility rules vary, so always check your local criteria.

• How long do I have to sell my existing home with a bridging loan?

  Most bridging loans allow 6 to 12 months to sell your property. During this time you’ll temporarily carry two loans, and once the sale is complete the bridging loan is paid down using the proceeds.