Land Equity as downpayment? (loan officer, interest rate, 401k, pre-approved)

[BradMcCunn]

Ok folks, first off, I'm glad I found this place.

Here is my situation;

I have land (5 acres.) that I am planning on building a house on very soon. (gifted land, I nothing owed on it)

I have applied for a construction loan and have been approved for nearly all products the banks are offering.

One product in particular is land equity as a down payment.

So, let me set this scenario up for you. If the 5 acres appraises for 20k, and my loan is for 160k, and I put down 10% of real money (16k down out of pocket), how exactly does the land tie into this? Does it just mean I can get better interest rates?

If I add the land and the actual down payment together I come up with 36k. Surely that doesn't mean I would be putting down 36k, and my mortgage becomes 124k financed?

Please help me understand this!

[CAVA1990]

If your loan is for $160K, which you state, you'll owe $160K on your mortgage. I'm assuming the bank is valuing the property with the home on it at something above $196K, the value of the loan + your down + the value of the land.

[BradMcCunn]

Originally Posted by CAVA1990

If your loan is for $160K, which you state, you'll owe $160K on your mortgage. I'm assuming the bank is valuing the property with the home on it at something above $196K, the value of the loan + your down + the value of the land.

Huh?

I'm putting 20k down. So my loan will be for 140k.

Where I'm confused is how the land equity helps me as far as the downpayment goes.

Here is an email I received from a bank I am currently working with;

Brad,

Congratulations on being Pre-Approved through Huntington Mortgage Group for a FHA One Close Construction Permanent loan.

Your pre-approval was based off a lot price of $50,000 and a build price of $150,000. You will need a down payment of 20% which is $40,000 that can come from lot equity and your down payment plus closing costs.

You are also pre-approval was based off a lot price of $50,000 and a build price of $150,000. You will need a down payment of 3.5% which is $7,000 that can come from lot equity and your down payment plus closing costs.

Here are your next steps;
1. Fax to me the following info
2008 and 2009 W-2’s
Last 30 days of paystubs
Last 60 days of asset statements, all pages. (Bank, 401K, Retirement…)
Legible copies of your photo ID’s
2. Get a lot in contract and get in contract with the builder
3. Send me the lot contract and builder contract and $350 for the appraisal

If you have any questions, please let me know.

Thanks!

[pjoseph2]

Look at the numbers again. The value of your lot ($50,000) is already greater than 20% of your total project ($200,000). Based on that, you don't need to put any more down payment.

Only an appraisal can confirm these numbers (lot value & total project value).

The mortgage company it appears, just cut and pasted a canned response to you.

[BradMcCunn]

Originally Posted by pjoseph2

Look at the numbers again. The value of your lot ($50,000) is already greater than 20% of your total project ($200,000). Based on that, you don't need to put any more down payment.

Only an appraisal can confirm these numbers (lot value & total project value).

The mortgage company it appears, just cut and pasted a canned response to you.

Where/how did you come up with 200k?

Please re read what I wrote.

[pjoseph2]

My mistake. i got that number off the lender's canned response.

The bottom line is this. If the land is valued (appraised) at 20% or more of the total project, that would be your down payment. This is what my loan officer told me last week.

[CAVA1990]

Originally Posted by BradMcCunn

Huh?

I'm putting 20k down. So my loan will be for 140k.

;

Originally Posted by BradMcCunn

and my loan is for 160k,

Huh?

[Lacerta]

Originally Posted by BradMcCunn

Where/how did you come up with 200k?

Please re read what I wrote.

I'm having trouble following what you wrote, actually.

Originally Posted by BradMcCunn

So, let me set this scenario up for you. If the 5 acres appraises for 20k, and my loan is for 160k, and I put down 10% of real money (16k down out of pocket), how exactly does the land tie into this?

Originally Posted by BradMcCunn

Huh?

I'm putting 20k down. So my loan will be for 140k.

Where I'm confused is how the land equity helps me as far as the downpayment goes.

Here is an email I received from a bank I am currently working with;

Your pre-approval was based off a lot price of $50,000 and a build price of $150,000. You will need a down payment of 20% which is $40,000 that can come from lot equity and your down payment plus closing costs.

You are also pre-approval was based off a lot price of $50,000 and a build price of $150,000. You will need a down payment of 3.5% which is $7,000 that can come from lot equity and your down payment plus closing costs.

So you stated that your loan would be $160k, then you stated that your loan would be $140k. The bank values your construction at $150k.

You stated that your down would be $16k, then $20k, then the bank said $40k or $7k, depending on loan type.

You stated that the value of your lot was $20k, but the bank says $50k.

Going by the bank's numbers, your total value will be $200k, which is $150k improvement value + $50k lot value. Going by your numbers, your value will be (I think) $180k, which is $160k improvement value + $20 loan value.

I think the bank is saying that you are set percentage wise with the equity in the lot and don't need any more down, but you should confirm that with them, especially since you said the lot is only worth $20k. Also, if the improvement is valued by the bank at $150k and you are borrowing $160k, then you are borrowing against the value the bank gave the lot. However, since the bank said you need $40k down and gave the lot a value of $50k - and the extra you are borrowing against it is only $10k, that still leaves you a value of $40k, so you would only need to come up with your closing costs.

All of that should be confirmed with your lender.

[chanellm85]

What if you don't own the land outright and still making payments, can you still have equity in it to use as a down payment of a home? Sorry not intending to change the subject but I'm curious because I will be purchasing land in order to build a home but I am a first timer and I'm not sure about the whole process.

[399083453]

Well if you bought land for $50k, still owe $48k and its worth $50k, you have $2k in equity.