Wednesday, March 9, 2011

Land and Construction Loan Requirements

One thing I didn't know much about are the requirements and processes for getting a land or construction loan with a bank. It is similar to the process for getting a home loan, but with a few more restrictions and a lot more paperwork and project management.
  • If you're just purchasing land, you have to get a land loan. These come with high interest rates (4-5% higher than a normal home loan).
  • If you plan to build right away, you can avoid the land loan and get a construction loan. 
  • Construction and land loans require a 20-30% down payment depending on the bank and your finances
  • In order to qualify for a construction loan, you need land, completed plans, a permit from the city, and a contractor in place and ready to go
  • The contractor also has to be approved by the bank. In most cases, this isn't an issue, but the process can take a couple weeks. 
If you don't have everything in place, you can always buy the land first and then roll it into a construction loan later on. This, however, does end up costing more because you have to pay interest on the land and close a second time on a construction loan.

I ended up working with Washington Federal to get my construction loan. 

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