Why FIFO Workers Should Use Construction Loans for Townhouses

Buying Land First Changes How Construction Finance Works

When you buy land now to build townhouses later, you're funding the project in two separate stages. You settle the land purchase with a standard home loan, then convert that loan to construction finance once your building contract and council approval are in place. The land component sits as a completed transaction while the construction component draws down progressively as the build advances.

Consider a FIFO fixed plant operator in the Pilbara who purchases a 900 square metre block in Baldivis for land value at the suburb's current median. The operator settles that purchase with an 80% land loan, paying principal and interest from day one. Eighteen months later, the operator finalises a fixed price building contract with a registered builder for two three-bedroom townhouses. At that point, the lender converts the land loan into a construction loan, consolidates the outstanding land debt with the approved construction cost, and shifts repayments to interest-only on whatever has been drawn down so far. The operator now holds a single facility covering both land and build, with funds released according to a progress payment schedule as the builder completes each stage.

The advantage for FIFO workers is control over timing. You can secure land in a growth corridor without rushing into a builder contract before you're ready. The risk is interest cost. You're servicing debt on vacant land for however long it takes to get council plans approved and commence building.

What Lenders Assess When You Already Own the Land

Lenders treat the land as equity in the project. If you bought the block for $300,000 and now owe $240,000 on the land loan, your equity is $60,000. That equity counts toward the deposit requirement for the total project cost, which is land debt plus construction cost.

For a project costing $240,000 in remaining land debt and $600,000 to build two townhouses, the total project cost is $840,000. At 80% LVR, the lender will fund up to $672,000. You need $168,000 in equity and cash combined to meet the 20% contribution. Your $60,000 land equity covers part of that, leaving $108,000 required in genuine savings or other available funds.

If your land has increased in value since purchase, lenders will use a current valuation. A block bought for $300,000 two years ago and now valued at $350,000 gives you $110,000 equity if the loan balance has dropped to $240,000. That higher equity figure reduces the cash deposit you need to bring to the construction phase.

Lenders also assess whether you can service the higher debt. Construction loans typically allow interest-only repayments during the build, which keeps repayments lower than principal and interest, but your income still needs to cover the interest on the full approved amount once the project is finished. Suncorp shades FIFO income for non-essential services roles at 80% where that income has been earned continuously for six months or more. Ubank applies 80% shading to regular overtime and shift allowances. If your FIFO contract pays a base salary of $120,000 plus $40,000 in allowances, a lender using 80% shading will assess your income as $120,000 plus $32,000, which is $152,000 instead of $160,000. That difference affects how much the lender will approve for the combined loan amount.

How the Progressive Drawdown Works During Construction

Funds release in stages as the builder completes specific milestones. A typical progress payment schedule includes a deposit, base stage, frame stage, lockup stage, fixing stage, and completion. The lender holds back each payment until a progress inspection confirms the work is done.

In a scenario where a FIFO fixed plant operator in the Goldfields is building two townhouses on a block in Byford, the total construction cost is $580,000. The operator has already settled the land and converted the loan to construction finance. The builder's fixed price contract includes a deposit of $29,000, then five progress payments of approximately $110,000 each. The lender releases the deposit at contract signing, then inspects after the base is poured, the frame is up, the exterior is weatherproof, the internal fit-out is complete, and the final handover is done. Each inspection triggers the next drawdown.

You only pay interest on the amount the lender has released so far. After the frame inspection, if $150,000 has been drawn down, your interest cost is calculated on $150,000 plus whatever remains owing on the land loan, not on the full approved facility. As each stage completes, the drawn amount increases and so does the interest cost. By the time you reach practical completion, the full construction amount has been drawn and you're paying interest on the total project debt.

The builder invoices the lender directly for each progress payment. You don't receive the funds yourself unless you're managing the build as an owner builder, which most lenders won't finance above 60% LVR. For standard construction loans with a registered builder, the lender pays the builder and you manage the timeline and quality from site, or more commonly, through photos and video updates while you're on roster.

Why Fixed Price Contracts Matter More for FIFO Buyers

A fixed price building contract locks in the total construction cost before the loan is approved. The contract states the builder will complete the project for a set price regardless of cost variations during the build. Lenders require this certainty because they're approving the loan based on a final project value, and they need to know the amount they're funding won't increase midway through.

Cost plus contracts, where the builder charges for materials and labour as the project progresses, are harder to finance. The final cost isn't known at the outset, so the lender can't confirm the loan will cover the full build. Some lenders will consider cost plus contracts for experienced owner builders, but they'll cap the LVR at 60% to 70% and require detailed cost breakdowns and builder's insurance.

For FIFO workers, the fixed price contract also removes the risk of cost blowouts while you're off site. If the builder underestimates the cost of materials or subcontractors, that's the builder's problem under a fixed price contract, not yours. You're not fielding calls from plumbers or electricians asking for payment variations while you're twelve hours into a shift in the Bowen Basin.

SGB and STG will lend up to 95% LVR inclusive of lenders mortgage insurance on a fixed price building contract for both owner-occupied and investment construction projects. Without LMI, the maximum is 80% LVR. That policy applies to FIFO workers building townhouses as owner-occupiers or as investment properties, provided the contract is fixed price and the builder is registered.

Council Approval and the Commencement Deadline

Most lenders require you to commence building within six to twelve months from the loan approval date. If you don't start within that window, the approval expires and you'll need to reapply. The clock starts from the formal approval date, not from when you bought the land.

Council approval for a townhouse development takes longer than approval for a single dwelling. A dual occupancy or subdivision application involves neighbour consultation, sometimes a development application rather than just a building permit, and more detailed engineering plans for services and stormwater. In growth suburbs where council planning departments are managing high application volumes, expect three to six months from lodgement to approval.

If you're on a 2/1 or 3/1 FIFO roster and managing the approvals process remotely, build in time for your builder or draftsperson to handle any council queries or requests for additional information. Missing a council deadline because you were off site and didn't see the email can add weeks to the approval timeline. If that delay pushes you past your lender's commencement deadline, your loan offer lapses.

Once council approval is granted, the builder typically takes two to four weeks to finalise supplier contracts and book subcontractors before breaking ground. From the lender's perspective, commencement means the builder has started physical work on site and submitted the first progress claim.

What Happens to Your Existing Loan When You Convert to Construction Finance

Your current home loan for FIFO workers on the land gets refinanced into the new construction facility. The lender pays out the land loan, adds that amount to the approved construction cost, and issues a single loan with two components: the land debt, which is fully drawn, and the construction debt, which draws down progressively.

If you bought the land with Lender A and now want to use Lender B for construction finance, you'll pay discharge fees to exit Lender A. Those fees typically run $300 to $500. If Lender A offered a cashback or rate discount that's still within a clawback period, you may also owe a clawback penalty. It's usually cheaper to stay with the same lender if they offer construction finance and their rates are acceptable.

If you're staying with the same lender, the conversion is an internal refinance. You'll still pay a valuation fee for the lender to assess the project's completed value, but you avoid discharge fees and the lender already has your income documents and serviceability assessment on file. The process is faster and the cost is lower.

Interest rates on construction loans are often slightly higher than standard variable home loans because the lender is funding a project with completion risk, not a finished property. Expect a margin of 0.10% to 0.30% above the lender's standard variable rate. Some lenders also charge a progressive drawing fee each time they release funds, typically $200 to $400 per drawdown. With five or six progress payments over a twelve-month build, that adds $1,000 to $2,400 to the total project cost.

Switching to Principal and Interest After Completion

Once the build is finished and you've received the certificate of occupancy, the lender converts the loan from interest-only construction finance to a standard principal and interest loan. Repayments increase because you're now paying down the loan balance, not just covering the interest cost.

For a completed project with a total debt of $840,000, interest-only repayments during construction at a rate of 6.5% would be approximately $4,550 per month. Once the loan converts to principal and interest over a 30-year term at the same rate, repayments jump to around $5,310 per month. That's an extra $760 per month.

If you're building the townhouses as an investment and plan to rent them out, most lenders will allow you to remain on interest-only repayments after completion for an initial period of one to five years, depending on the lender's policy. CBA excludes land and construction loans from their LMI waiver policies, which means if you're borrowing above 80% LVR and want to stay interest-only post-completion for investment purposes, you'll need to meet standard investment loan criteria and the lender may not offer an extended interest-only term at higher LVRs.

If you're building as an owner-occupier and planning to live in one townhouse while renting the other, lenders will typically assess the project as owner-occupied for LVR and interest rate purposes, but they'll include the expected rental income from the second townhouse in your serviceability assessment. That rental income is usually shaded to 80% to account for vacancy and maintenance costs.

What to Do Before You Start Looking for Land

Get pre-approval for the total project cost before you buy the land. A pre-approval for a $900,000 construction project tells you exactly how much you can borrow for land plus build combined, what deposit you need, and whether your FIFO income is sufficient to service the debt once the project is complete.

If you get pre-approval for land only, then try to add construction finance later, you may find the lender won't approve the additional amount because your total debt now exceeds their serviceability limit. APRA's debt-to-income guidelines introduced in February restrict banks from issuing too many loans where total debt exceeds six times gross annual income. If your FIFO income is $160,000 and your total project debt is $840,000, your DTI is 5.25, which sits below the threshold. But if income shading reduces your assessed income to $152,000, your DTI rises to 5.53. If you're also carrying car finance or other debts, you could breach the 6x threshold, and the lender may reduce your approved amount or decline.

Know what the finished townhouses will be worth. Lenders approve construction loans based on the completed value, not the land value or the construction cost in isolation. If you're spending $840,000 to build two townhouses and the lender's valuer assesses the completed project at $950,000, the LVR is 88.4%. If the valuer assesses it at $900,000, the LVR is 93.3%, and most lenders won't proceed above 90% to 95% even with LMI. Order a pre-purchase property report or get a desktop valuation for the land before you commit, and ask a local agent what two-bedroom or three-bedroom townhouses in that street are selling for.

Call one of our team or book an appointment at a time that works for you. We'll assess your FIFO income using lender policies that recognise shift allowances and roster patterns, structure the application to include both land and construction from the outset, and manage the progress drawdown process while you're on site so nothing gets delayed because you're off roster.

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