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What is the best kind of loan for new construction?

What is the best kind of mortgage for new construction?  And what is the best kind of loan for buying land?  Can you combine them? This would be for a long-term house.
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February 03 2009 - East Wenatchee
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March 30 2009
If you are buying land with no plans and permit, the problem with this approach is that you'll need both of those items to obtain the loan.  Some sellers aren't willing to wait for you to design a house an obtain a permit on their site since this can take several months.  A bank doesn't know what your final project will be worth and you don't know what the project will ultimately cost without your plans in place.

If you want to get the absolute best deal on the land, you would probably want to go in with a strong offer meaning that you can close very quickly but for a lower price than they are asking.  Make sure to do your feasibility studies first though because there is a LOT of garbage land on the market.  You have to figure most of it has a reason why it has not been built on yet.  This would mean you would need a 20 year land loan with 25% down.  Then often you can refi that loan into your custom construction loan with the same bank.

One other piece of advice is to not limit yourself to looking for vacant land.  Also look for mobile homes.  These will often have the drainfields in place, water/well and other expensive items like that.  You also will know that the land is pretty much buildable if there is already a mobile on it.
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March 27 2009
The best type of construction loan will allow you to purchase the property and qualify for the construction loan at the same time. If you finance the lot separately you will end up closing first on the lot loan and then closing once again when you do the construction loan. This will cost you more money. That said, and it may be difficult to find a seller willing to wait for you to qualify for the construction part of the loan before you purchase the lot. I have lender resorces here in Western Washington but I am not sure they cover Wenatchee. In your area, I think HomeStreet Bank would be a good construction lender.

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March 27 2009
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thank you
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February 03 2009

It sounds like you need a one-time close construction-perm loan.  It is designed for you to purchase the lot, provide you with the construction loan and then convert into a permanent 30 loan upon completion of construction.  These were once very popular and could be found almost anywhere.  Now they are much harder to find.  Check with your local banks to see if they offer the construction/perm... If you can't find it then you will most likely need to get a lot loan to purchase the lot, a construction loan to build the home and a permanent loan to pay off the construction loan.  Lot loans are generally 2-5 years in term to give you time to get your plans drawn and building permits approved.  Construction loans are from 6-18 months depending on the complexity of the property being built.  Good luck

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February 03 2009
 
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What is the best kind of loan for new construction?
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