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If we bought a piece of a land for $200K and wanted to build a 2500 sq. ft house on it, what type of loan would I need and how would it work? How much down payment would be required and how much would we need to qualify for?
I have never looked into this before and there are some good land deals around here (most in existing devlopments that have already been portioned out from the builder) that already have utilities going to them.
What should I expect? Is it more work or money than it's worth? Should we stick to buying resale?
The world of independent / custom home building has not seen the kind of complete disregard for borrower quality that happened with the mas builders and existing home lending.
Lenders routinely expect that land costs will be about 1/3 of the total price of the complete project. They also routinely require a minimum of 20% or more cash down payment.
SO, looking at a single parcel of about $200K you'd need to be qualified to PAY about $600,000, have about $120,000 downpayment and have household income north of $150K... Of course if you have an existing house and equity exceeding the cost of the land things get MUCH more liberal, but they lenders still want to see that you have much more cash, as it is RARE that a custom house comes in under budget.
Here's the deal...have enought for 10% down on the land only (so about $20K) but because of the bad housing market where we live it looks like we will be unable to sell our current home for at least the next 3-5 years.
So....when the market hits rock bottom, we are hoping to buy a piece of land at $150K-$200K to build on eventually when the market goes back up and we are able to sell our house.
Annual income is $150K-$165K annually (good credit). When we do sell our house, we will be hoping to get at least another $100K out of towards the construction loan.
Do you think it's wise with just 10% down towards the land only, to buy just the land and sit on it until we can sell current home and then build in 3-5 years?
It was 20% down of the entire project. They want a purchase agreement with the builder before they will give you the loan. Then they require 20% of it all. Then they distribute money to the builder though-out the process.
It may be different in every state. I'm in Texas.
Years ago I bought some land. Had to first find a bank that did land loans.
Then put 20% down. The mortgage was a 10 year with balloon payment at a higher interest rate than your typical mortgage on a house.
The next year I found a builder. That mortgage was a single mortgage (no construction loan to mortgage loan) and included paying off the mortgage on the land.
I did it as two separate purchases..the land first and then building the house.
I am also in Texas. I bought the land with 20% down. I got the mortgage loan approved and they used the value of the land as the 20% down payment for the mortgage loan. I had 6k in the land purchased for 20K and valued at 30K; and the loan value was 130K and the preconstruction appraisal was 210K. I did a lot of the construction myself since my dad was a homebuilder, and his corporation (2 man corp) fronted the construction phase. I was not required to bring any more down to the table for closing. I suppose they also considered my instant equity as part of the 20% down. I am guessing that the cash down on the land plus the land equity plus the improvements equity looked as though I have 86K invested in a 130K loan, at least on paper, but only 6K was hard cash and that was on the land purchase and not part of the construction financing except as using the land as collateral. There was technically zero cash at closing from me on the construction loan.
I did not question their math or lack of PMI requirement. I just live in my house and make payments every month.
I know this is an old thread , however , anyone out there trying to get a Construction loan there days ?
I have been coming up dry for some time , and have run out of cash to finish the house. ( 50 percent done ) Still have some left on land contract also. I am being told the construction market money has dried up. Any experiences ?
I think your best bet would be to go to a local bank in your community. All of my lenders have ceased construction lending through the broker channel.
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