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We are purchasing land intending to build a house. Are banks interested in the land free of mortgage before approving a construction loan? Or is getting a loan for the land better ? I’ve read in my build book that years ago banks preferred land paid for in cash.
Covid has impacted the mortgage underwriting process as much as any other. Call a couple of lenders or a broker and get their input. In terms of overall risk, they might prefer to have everything consolidated into one loan or, at least pay off the land at closing for the new construction loan. <dunno>
Based on my experience there are very few lenders who will lend on unimproved or undeveloped land. I had been planning on buying some land for future building only to discover that there are almost no lenders that will lend on land only. Makes sense, but since I was new to the land thing it wasn't something I had considered.
As it sounds like you already own or are purchasing land for a potential build, I would expect that if you're doing a construction loan you would just wrap the remaining balance on the land into your construction loan.
Since I've discovered that it's near impossible to get a mortgage on land alone, I expect to identify a piece of land when we're ready to build and purchase it as a part of the construction loan.
The holder of the house mortgage will not subordinate to the mortgage already on the land. So you are going to have to get a combination mortgage that pays for the construction and the land both, or else you are going to have to have the land paid off.
The chances of buying land with an agreement that the holder of the land mortgage will subordinate to a new construction mortgage are just about less than zero.
We are purchasing land intending to build a house. Are banks interested in the land free of mortgage before approving a construction loan? Or is getting a loan for the land better ? I’ve read in my build book that years ago banks preferred land paid for in cash.
Lenders would prefer the land is owned free and clear as it improves their collateral position, but that doesn’t mean it is always required. There are many variables in play.
No disrespect to anyone here. But for such a major life decision you should hire a good real estate agent. They might be able to advise you on things you don't even know about yet.
We are purchasing land intending to build a house. Are banks interested in the land free of mortgage before approving a construction loan? Or is getting a loan for the land better ? I’ve read in my build book that years ago banks preferred land paid for in cash.
With todays low interest rates, you would be better of getting pre-construction loan to also cover the land, even if you could afford to buy it with cash. You will need the building plans and estimated cost to build, so the lender can see if you can afford it. But it is crazy not to take advantage of todays historically low interest rates.
One thing to keep in mind, that building supplies are up to crazy levels, with lumber up 200%, copper up 60% and other materials not only up, but are hard to come by.
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