Loans for the purchase of a plot of land and for the construction of a new home are different but can be combined or rolled into one if you’re planning on building your home promptly after closing on the property. You’ll find it more difficult to find a lender willing to loan you the money to purchase a plot of land vs. the purchase of an existing home. The good news is if you’re planning on building a house on that land you’ll attract more attention from lenders and find yourself with more options. To get the best financing you’ll want to show the lender you’re serious about entering construction as quickly as possible. One way to show how prepared you are to begin building your home –have construction drawings.
Look for local lenders. A good way to find a local lender will be to check with local real estate agents and title insurance companies. Avoid big, national lenders unless they have an established presence in the community. “Land loans” are only available for residential development only.
Survey. You’ll want a survey of the property from a local registered surveyor. The survey will need to include what utilities are found on the property and easements.
Zoning report. Reach out to the county clerk’s office and get a zoning report for the property. Verify that the lot has been approved for the construction of a residence.
Architectural plan. You’ll need the plan for your home: how many bedrooms, how many baths, total square footage, etc.
Documents for the lender. Provide copies of the survey, zoning report, and the home’s architectural plan –this will show your commitment to building on the land and making it something valuable.
Show how you’ll pay for the home’s construction with the land loan. Create an itemized list of building costs and explain how you’ll use the loan to build the home.
Look for local lenders. Seek out local lenders who specialize in construction loans. The lender should be able to point you towards licensed general contractors who they’ve vetted and used previously. Interview the construction companies, find one (or more) who you trust, and get quotes based on the architectural plans.
Apply for two loans. You’ll need a loan for the purchase of the land and a second for the construction of your home. *Tip: to make the best case forgetting the loan, be as prepared as possible. Be prepared to provide copies of the architectural plans, zoning documents, surveys and the list of building costs.
Start building! Your goal will be to break ground within two years.
The loan will pay the builder. Your loan will be used to pay the builder –directly. Be prepared to pay the interest on the construction loan will the home is under construction.
Residential Home Loan
Look for local lenders. This time you’re looking for a house and land “package” loan. With this type of loan the price of the land will be rolled into the construction loan allowing one loan to finance both expenses. Again, have your paperwork ready.
Pay interest only during construction. One benefit of a package loan is you’ll only be asked to pay the interest on the loan during the construction.
Taxes –be careful. *Note: you won’t be able to deduct the interest of the land loan or the construction loan UNTIL the house is finished.
These are just a few of the types of loans available to you. Seek out licensed professionals to determine what loan is best for you, for your budget, and for your project.