How to Finance Buying Land & Building a House
If you are going to buy a parcel of land and then build your dream home, acquiring a construction loan from the bank may be the right direction to take to finance this goal. A common misconception among many home buyers is that it is not possible to get a loan for purchases of parcels of land. This is not the case! Banks do fund land loans and this is a huge financial relief for many upcoming homeowners.
Banks like the U.S Bank do offer lot loans which are short- term, interim loans that can be used for home construction by homeowners looking at buying land. This is a big relief for many homebuyers as the banks are creating opportunities for financing meaning they do not have to rely heavily on hard money in order to begin building.
The basic parameters when it comes to lot loans are as follows (may vary from house to house):
- The piece of land can be up to 10acres
- Conventional mortgage financing for buildings
- 3/1 Adjustable-Rate Mortgage (which means that the initial interest rate is fixed for a period of time. With the US Bank, the rate is fixed for 3 years then it becomes variable after that. Home buyers can therefore come back and refinance the loan again)
- Loan sizes of up to $300,000 (there are exceptions for higher loan sizes, please consult your loan officer regarding this)
The bank will of course perform a credit analysis on the potential lender using a combination of qualitative and quantitative finance as well as margin finance to determine the ability of debt repayment.
So, this means that as a home buyer you have such a great opportunity to build your dream home simply by approaching a bank that offers land loans (lot loans) that offers financing options for property. Take advantage of this to pay off your land loan and begin the process of purchasing that property that you’ve wanted for the longest time and build your dream home!
