Buying Land & Building Custom Pt 2 | Monday Minute

Last week we talked about buying land and building a custom home.  But a question I get a lot is how do I get a loan when purchasing land and building a custom home?When purchasing a semi custom home, like in most large neighborhoods, the builder holds the note on the land and the construction throughout the process, so the loans are the traditional mortgage programs, similar as if purchasing a resale home.  But that is not the case with land and custom construction.When it comes to buying land, there are often limitations on getting loans if you don’t plan to build on the land within the first 2 years.  The main reason is that the lenders are more interested in lending based on the home that will be built there vs just the land by itself.  So when purchasing land, you are looking to get what's called a Construction Perm loan.  This stands for “Construction-to-Permanent” loan.These types of loans incorporate the total cost of the land and construction of the home.  When you go to settlement on the land, you get an initial draw on the loan amount to complete that purchase of the land.  And then the home builder gets draws on the remaining portion of the total loan throughout the building process.  During this time, you are making payments based on the amount of loan that has been paid out, and once the home is complete, then the total loan amount is added back together and re-amortized as a “permanent” loan.Construction/Perm loans are generally between 5% - 20% down, with as low as 0% down for the VA construction loans program.If you have any questions about buying land, custom builds, or Construction/Perm financing, give us a call.  We look forward to helping you!