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land loans (aka: lot loans)

IHateMyJob2004

IHateMyJob2004

Lifer
Short story:

I have a mortgage currently. Owe about $187,000. Home is worth $320,000 (minimum). I could get a home equity loan of about $60,00 I figure for a downpayment which is somethign I'd rather avoid if possible.

The land is priced outrageously. $250,000. I and others came up with a range of $150,000 to $200,00 being a logical price to pay. I and others is myself, my father in law and our real estate agent. Notreally going to get into it's worth.

In short, I'm think about offering $150,000 take it or leave it. Might offer $175,000 later on.

I'd buy the land now and plan for construction to be completed early Summer 2006. Meaings I wouldn't start construction till end of summer 2005. Might just offer $150,000 with a closing date of June 2005.

Here's the important part (cliff notes)
I need a land loan for $150,000. Assume that I would pay 20% down which is $30,000. Where can I get a land loan? Do all mortgage lenders do them? What kind of interest rate would I be seeing?

Karl

 
Since the S&L debacle of the 1980's, banks do not offer a straight land loan. Considered too speculative. The way to do it is to get a construction loan, where the proceeds will fund the lot purchase and the building costs. You'll need to come in with 20% down for the total project. A construction loan is actually two loans. The first is normally a line of credit to be disbursed via constructions draws. Pricing is typically WSJ Prime + 2%, the term is usually 6-9 months and payments are interest only monthly. The first draw would eat up your 20% down and secure the purchase of the land. Once the project is completed, then permanent financing (i.e. 15-20-30 years mortgage) pays off the interim construction loan. Your real estate agent should be familiar with the process.
 
ouch

This is a scarier idea every time I think about it. Hrmmmm...what to do.

Going to bed now. I'll be back in the am looking into this more deeply.

 
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