Buying Land/Construction Loans?

[rhodesbe]

Can you give me a rundown on what the process is for buying land/building a house?

I have a traditional 30 yr mortgage on a house that is in the suburbs, but my wife and I would like to build a house on the right piece of land.

We may have found something we're interested in, but would need to finance a portion of the sale price.

I guess in the back of my head, I thought a 'construction loan' would be the way to go, but I've learned that these types of loans are increasingly hard to get.

I am confident that I could qualify for a mortgage that covers the total amount of both the land and house we are looking to build, but I'm not very clear on the best way to manage this.

Your experience and wisdom is appreciated! Thanks.

 

[Tin Star Firearms]

I contacted a general contractor that I wanted to use and gave him a set of plans. Once he had figured out what it would cost, I spoke to a few banks to secure the funding. Then once a week, I would write the contractor a check for the work that was completed that week such as framing, painting etc and call the bank to let them know. They would keep me up to date on the level of the account so I knew where I was at as the house neared completion. Once it was all said and done, they sold my account to Wells Fargo and I am happily raising my family in the house on twenty-five acres.

Andrew

 

[GlockPride]

We did a construction loan about 2.5 years ago when we built. We already had the 13 acres and some equity.
We paid on invoice with lendig institution approval. Meaning we would submit for payment, the bank sends out a rep for approval and then they deposit money. Check is written and contractor is paid. We did have have to put some cash into the project as well as a down payment when financing. You have to watch that the bank per-appraisal on project and final appraisal opinion may vary, some by 5% or more.

The final project had everything to do with rolling into a permanent mortgage. You need to be prepared to bring several thousand to the closing. We had to bring several thousand to the project, several thousand down payment and several thousand in closing costs. They will also expect to roll in your acreage so if you default they can take it all. Also, if you are not 82% loan to value you will have PMI.

You ALWAYS need more dinero than you think in the beginning. Costs will increase. Do not go into this broke or 'tight'.

 

[rhodesbe]

You ALWAYS need more dinero than you think in the beginning. Costs will increase. Do not go into this broke or 'tight'.

I appreciate this good word.

 

[ZombieHunter]

The above by GlockPride is one way to go, but as he stated they will want to roll the land and everything up into one nice neat mortgage package, I can give you my family's steps, broken down in simple steps

1. Acquire Land - Either find something you can buy outright for cash or find an owner/seller willing to make the deal without bank involvement, I.E. $5000 Down and $200 a month, total land price was $25,000K, just as an example.
2. Begin building a home, again for cash, do everything yourself as far as site prep and foundation work if possible. Shouldn't take more than 2-3 years to do this, took me 2.
3. Frame and enclose home, Wire in Electrical and Run Plumbing, again doing this for cash up to THIS POINT should not cost more than $40-65k out of pocket again dependent on how much you do yourself if any at all, and the size of the home being built, now as long as your credit is decent you should be able to achieve a MUCH more favorable rate than your neighbor who just signed a 30yr mortgage as YOU were the one who created the value.
(reason for doing electrical and plumbing is if you get those done and permitted as complete, the next step is completely different from what a bank will normally offer)
4.Banks will absolutely loan on a half finished building, in fact prefer it, as again you have equity in it from the start, If they want to wrap your land up in it when you own outright seek other loan options, you are looking for a "RENOVATION" loan as the building is "completed" legally speaking and is just being renovated before going to acquire a loan, it's what is called "Loan on Permitted Structure"

 

[Bellboy]

I make construction loans on a weekly basis, would be glad to answer any questions or explain our process.

 

[farmer17]

I've been a home builder for 19 years, talk to your banker about a construction loan. They will ususally loan 80% of the final appraised value on the land, house, and improvements. You will need to to give the banker the land info, plot plan with house located on the land, and the house construction plans, then the bank can get a value from their appraiser. If you have any questions feel free to PM me.

 

[CODE_3]

Most people purchase the land and that requires at least 20% down payment. Once you get enough equity in your land, you can use that equity to put down on your construction loan. Feel free to PM me if you have any questions.

 

[stick4]

Check into a bridge loan. That's what we did. Had some CDs in Pentagon Federal CU and our current home was paid off. Needed to borrow $100K to put with the CDs to pay the builder as the stages of completion went along. As soon as the builder got the occupancy certificate we moved in. Sold the old house 2 wks later and paid off the bridge loan.

 

[Devon]

If you have an Arvest in your area, they will loan 100% of the purchase price (or appraised value, whichever is less) on raw land.