Profile picture for user4453138

Is it possible to get mortgage loan for land purchase + home construction costs?

Hello,
this seems to be an uncommon topic to research. I am looking at purchasing land in California to build a custom home. The annual income is 145k, have 150K to put down for downpayment, and credit score is 780 with no other debts. The cost of land is 450K and construction estimate is about 600K. The seller is also the builder. 

Is it possible to apply for a mortgage to cover the cost of construction+land?
  • August 01 2013 - Saratoga
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

 
 

Answers (6)

There are more lenders willing to construction loans.  Best to talk to a mortgage broker that has access to 30+ lenders to find one that is willing to handle your situation. Kimie Seaton at The Loan Story in Santa Clara is my go-to person.

Austin is right that the size of the downpayment may be an issue. I remember these loans being in the 30-40% range.
  • October 10 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Since I am not a lender I cannot give you more in depth information, I can however give you a lender who I know can help you. His name is Paul Collier and he is located in CA; he knows the local regulations and will either give you the information you need or point you in the correct direction. Below is a link to his website and a video of what he did for me.

http://gettoknowrefinance.wordpress.com/2013/04/23/i-love-satisfied-customers/

  • August 01 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

If the seller is the builder then why doesn't he simply do a spec loan rather than ask you to go out and get a custom construction loan? I used to specialize in custom construction loans before much of the construction financing dried up. These days, there is no real cost savings for you to obtain your own custom construction financing. You can purchase the lot from builder and he can carry a spec loan. Then, when construction is complete you would have all normal loan purchase options available to you. Make your builder get a spec construction loan and you will save money.

  • August 01 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

I would find out what local banks are in the area and contact a loan officer at the bank. Land loans and construction loans are a little tougher than the regular home or condo loan, but many times the local bank, if there is one in the area, will make land combined with construction loans.
  • August 01 2013
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

To a certain degree. If you are looking to put $150k down on the land purchase, you should be able to get construction financing up to 90% of the final appraised value. This is generally for smaller projects because it is easier to find exit loans at lower loan amounts. Construction loans are usually interest only with fees up front paid for the duration of the construction. You are also responsible for any shortfall in construction costs so you need to have additional savings that you are willing to put up. The main hurdle is that you would have to qualify for the construction to permanent financing after the construction is done. 

For the purpose of the loan, value is based on the lower of either the appraised value, or total cost of land + construction costs. This is a high loan to value ratio for this loan amount. Assuming the final value is about $1.05 million, your loan would be about $900k to cover the rest of the land and the construction costs and about 90% loan to value. 

You will be faced up against your debt to income ratio. A loan on $900k will carry a qualifying monthly payment around $6,000+tax+insurance. This would total close to half of your monthly gross. I don't know any banks that will go down the road at this point. In my opinion, you would need to either put a larger down payment on the land, or keep the total construction costs down to reduce the ratios.
  • August 01 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

We do have a construction to perm although you may have trouble with that down payment though, you generally will need from 25-30% down payment minimum (or more) for that type of loan.  If you want to learn more about what we might be able to do get in touch.

  • August 01 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.