First Home Guarantee Construction Loans: What to Know Before You Build

By Andrew Paterson

Whether you’re buying off the plan, going with a house and land package, or purchasing land and signing a building contract separately, the First Home Guarantee lets you buy with a 5% deposit and skip LMI.

The difference with construction is that costs can move during the build. The price cap applies to your final total including variations, so if you end up over the cap you could lose the guarantee and pay LMI after all. That’s why it’s worth building in some buffer from the start.

If your total build cost comes in under $750,000, you can also claim the $10,000 First Home Owner Grant on top.

How the price cap works

For an established property, the price cap applies to the purchase price. With construction, it applies to everything: land, construction contract and any variations.

For Greater Geelong, the cap is $950,000. For other parts of regional Victoria, it’s $650,000.

Most builds experience some cost increases along the way – site conditions the soil test didn’t pick up, drainage requirements from council, or decisions you make about finishes. If you’re building to $900,000 against a $950,000 cap and costs increase by 10%, you’re over the threshold.

Aim for a total around 10% below the cap. That gives you room to absorb typical variations.

The fixed-price contract requirement

Housing Australia requires a fixed-price building contract. Cost-plus contracts don’t qualify.

This means your builder carries the risk on their quoted price. But it also means the contract needs to be comprehensive from the start. Housing Australia’s guidance is that amendments to the fixed-price contract after signing “may impact the validity of your Scheme place.”

Lock in your inclusions and finishes before you sign rather than planning to upgrade during the build.

Site costs are harder to predict – rock removal, drainage work or council-mandated changes can emerge after construction begins. Lenders generally take a sensible view of variations outside your control, but they still count toward your total.

Timeline requirements

For house and land packages:

• Start construction within 12 months of settlement
• Complete within 24 months
• Move in within 6 months of occupancy certificate

For separate land with building contract:

• Enter building contract within 6 months of land settlement
• Start within 12 months
• Complete within 24 months
• Move in within 6 months of occupancy certificate

Most builds take 10 to 14 months, which fits comfortably within the deadline. The pressure usually comes at the front end – land titling delays, permit approvals taking three to six months, builder availability. Worth building in realistic assumptions rather than best-case scenarios.

Cash flow during construction

When you’re building, you make interest-only payments on whatever’s been drawn down. The loan is released in stages as construction progresses.

Early in the build, with $300,000 drawn, you might pay around $1,600 per month. By lock-up stage with $500,000 drawn, that’s closer to $2,700.

If you’re renting while you build, you’re covering both. At $500 per week rent plus $2,500 in construction interest, that’s around $4,700 per month before you’ve moved in.

Banks factor this into their serviceability assessment. Someone who qualifies for an $800,000 mortgage on an established property might find the numbers tighter when rent and construction interest are both in the picture.

Use our borrowing power calculator to see where you stand.

The total timeline from land contract to moving in is typically 24 to 30 months. That’s a long stretch of dual housing costs.

The lender panel

The scheme has about 33 participating lenders, but not all offer construction loans. For building, you’re looking at 5 to 10 realistic options. ANZ doesn’t participate at all.

Once construction starts, you’re locked in until the build completes – refinancing mid-construction isn’t practical. Choosing the right lender at the start matters more than usual.

Talk to someone who deals with this every week

Whether construction makes sense depends on your numbers – buffer under the cap, whether dual payments work, realistic timelines, and how it compares to established options in your target areas.

We’ll cover:

• Whether the numbers work for construction
• How much you can borrow given dual payment serviceability
• Which participating lenders handle construction loans well
• How the First Home Guarantee interacts with the First Home Owner Grant

For more on how the scheme works alongside other benefits, see our complete guide to Geelong grants and schemes.

A 15-minute chat will tell you where you stand. No cost, no pressure.

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