Once you have a lot loan for property that you plan to build on, you can apply for a construction loan. For a half-a-million dollar lot and half-a-million dollars in construction costs, you can get a loan for up to 80% of that total value, or $800,000. If there is a pre-existing mortgage, that is paid off first, with the remaining sum going toward the construction.
In terms of time from receiving the lot-loan to receiving the construction loan, it can be much longer than people imagine. Some clients think that after receiving a lot loan they’ll be building in weeks. However, local permitting processes add a significant amount of time -- generally from 8 months to 2 years, depending on how much housing developing is going on in that area and how streamlined the local processes. However, in the absolute worst-case it can be six years! To get a better estimate, talk to developers who are already working in the city and ask them for their honest opinion on the local timeline.
However, if you want to avoid these huge timelines, you can do what is called a ‘purchase construction’ that involves purchasing a lot that already has plans developed, permits pulled, and contractors ready to go, to reduce this timescale down to around 4 months. However, this requires that the seller has the floorplan already designed and approved, rather than allowing the buyer to design it from the ground up. However, minor changes are still able to be made by the buyer.
Though new-build construction can be a lengthy process, a good loan officer can help you expedite the process and find a good loan that fits your needs.
