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slapahoe
LSU Fan
USA
Member since Sep 2009
3159 posts

Land used in getting loan for new house


Can someone explain how having land already in your name when seeking a loan for building a new house will be beneficial? My friend tried explaining to me something about it would be easier to seek a loan because I had "collateral" to put down along with my down payment. Can someone explain further if this is true or not?






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Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
54553 posts

re: Land used in getting loan for new house


Because you have "equity" already. If your land is worth $30,000 then you have 30 grand worth of equity which counts towards the amount of "down payment" for the home.





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slapahoe
LSU Fan
USA
Member since Sep 2009
3159 posts

re: Land used in getting loan for new house


Land= $25,000
Down payment= $25,000

When I go seek a loan, the bank will look at it as if I have $50,000 total for a down payment?






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Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
54553 posts

re: Land used in getting loan for new house


quote:

When I go seek a loan, the bank will look at it as if I have $50,000 total for a down payment?


Depends on what the land appraises for. But pretty much yes. Because when you build, they attach the land to the loan. You are basically mortgaging the home and the land. If you default, your land goes to the bank.






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slapahoe
LSU Fan
USA
Member since Sep 2009
3159 posts

re: Land used in getting loan for new house


well I'm glad I had this conversation with this friend bc I would never known this. Is this something the bank wouldve told me or not?





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Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
54553 posts

re: Land used in getting loan for new house


quote:

Is this something the bank wouldve told me or not?


More than likely it would have come up when you applied and told them that you own the land outright.






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ScottieP
LSU Fan
Baton Rouge, LA
Member since Feb 2004
1688 posts

re: Land used in getting loan for new house


When you say "in your name" do you own the land out right or are you paying on it still?

Also, I assume you will be geting a construction loan to build the house. You really dont put a down payment down on a construction loan. An appraisal of the land and you house plans will determine the value of the property. This value will be land and house. Your loan will only be for what you need to build the house.

After you are complete you will do permanent financing. You could then choose to put a down payment down plus have the equity of the land to deterime your loan to value ratio.






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TClayboy99
LSU Fan
in the woods...
Member since Dec 2007
20420 posts

re: Land used in getting loan for new house


quote:

When you say "in your name" do you own the land out right or are you paying on it still?

Also, I assume you will be geting a construction loan to build the house. You really dont put a down payment down on a construction loan. An appraisal of the land and you house plans will determine the value of the property. This value will be land and house. Your loan will only be for what you need to build the house.

After you are complete you will do permanent financing. You could then choose to put a down payment down plus have the equity of the land to deterime your loan to value ratio.


This also depends on the size of the tract I think. Isn't their a limit to the size because of homestead exemption? You can't just build a house on 40 acres or more and expect to get a break on the taxes for the entire parcel. I think they request you to resurvey and cut out like a 5 ac. max sized piece to attach to the home. This in turn can affect the value of the collateral.

Another option would be a multiple indebtedness mortgage where you finance the home, the newley resurveyed lot, and the remaining acerage to put up more value.






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slapahoe
LSU Fan
USA
Member since Sep 2009
3159 posts

re: Land used in getting loan for new house


quote:

When you say "in your name" do you own the land out right or are you paying on it still?


I own the land outright.
So they will take my house plans and appraise the land and come up with the total appraisal of the land? Can I then take what the appraisal of the land is and use that as part of my down payment right?






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TClayboy99
LSU Fan
in the woods...
Member since Dec 2007
20420 posts

re: Land used in getting loan for new house


quote:

Can I then take what the appraisal of the land is and use that as part of my down payment right?


Correct. But by putting it up you run the risk of losing it if you default. Everybody means well, but you would be suprised how many sheriff sales and dation en paiments are filed every year.

What I'm saying is, if you paid off the property you should be doing well enough to come up with the down payment seperately. If it is inherited family land, are you willing to risk losing it so you can build on it? Basically, make sure you are stable finacially, and don't put it up just because thats the only way to make it happen. That's a formula for default if you go unemployed or have serious unexpected expenses.






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VABuckeye
Ohio State Fan
Oak Hill, VA
Member since Dec 2007
9900 posts

re: Land used in getting loan for new house


quote:

because I had "collateral" to put down along with my down payment.


It's not collateral. It's equity. The land has to be the land that you're building the house on. Otherwise it's just an asset.






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ScottieP
LSU Fan
Baton Rouge, LA
Member since Feb 2004
1688 posts

re: Land used in getting loan for new house


quote:

So they will take my house plans and appraise the land and come up with the total appraisal of the land?


I am not sure how banks will handle large plots of land. My only experience is with a subdivision lot. But yes the house plans and the land will detemine the total value of the property.

quote:

Can I then take what the appraisal of the land is and use that as part of my down payment right?


I would stop thinking of it as a down payment and think of it as equity.

Say it costs $200,000 to build the house. Say the appraisal comes back and the value of the house and the land is $250,000. When you do your permanent financing you will have a loan for $200,000 with 80/20 loan to value ratio. Its not really a down payment its equity.






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guttata
LSU Fan
prairieville
Member since Feb 2006
19848 posts

re: Land used in getting loan for new house


When I built my house last yr, the bank was only concerned that I had 20% to put down on the pre build appraisal of the house, regardless of the fact that I had already pretty much paid off my lot.





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slapahoe
LSU Fan
USA
Member since Sep 2009
3159 posts

re: Land used in getting loan for new house


quote:

But by putting it up you run the risk of losing it if you default. Everybody means well, but you would be suprised how many sheriff sales and dation en paiments are filed every year.


I understand this. But if it is a 2 acre lot, what good is it owning the lot if I default on the house that sits on the lot? Im just thinking that if I can use this lot to my benefit other than just a place to build, I would definitely like to explore the options bc Im very much unaware of things dealing with the process of acquiring loans/building a house. Im no where close to starting the process but rather just want to seek options to help the process later down the road.
TIA everyone



This post was edited on 7/3 at 1:22 pm


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Mr.Perfect
Louisiana
Member since Mar 2013
3141 posts

re: Land used in getting loan for new house


Correct. Hard to get the banks house off your land





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Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
54553 posts

re: Land used in getting loan for new house


quote:

what good will is it owning the lot if I default on the house that sits on the lot? Im just thinking that if I can use this lot to my benefit other than just a place to build,


You are going to be forced into including the land. The bank doesn't want to own a house if you default while you still keep the land. Eventually, it's all going to be part of the loan.






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ScottieP
LSU Fan
Baton Rouge, LA
Member since Feb 2004
1688 posts

re: Land used in getting loan for new house


quote:

You are going to be forced into including the land. The bank doesn't want to own a house if you default while you still keep the land. Eventually, it's all going to be part of the loan.


If possible you could subdivide the 2 acres and put the house on a half acre lot and have 1.5 acres of land free from the home mortgage. But then the value of the 1.5 acres will be an asset and will not count as equity for the home mortgage.






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Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
54553 posts

re: Land used in getting loan for new house


quote:

If possible you could subdivide the 2 acres and put the house on a half acre lot and have 1.5 acres of land free from the home mortgage. But then the value of the 1.5 acres will be an asset and will not count as equity for the home mortgage.


You could do that but I think it's more beneficial for him to include all of the land. Just my opinion.






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TClayboy99
LSU Fan
in the woods...
Member since Dec 2007
20420 posts

re: Land used in getting loan for new house


quote:

You are going to be forced into including the land.


That's right. You own the lot, together with all improvements. Now if it's a lean to shanty or a 5000 sq. ft. home makes all the difference in the value of the lot. Thus when buying a pre-existing house it only references the lot # on the deed with no specifics of the improvements.

Financing a build, you have to put up the lot and aquire something like a future obligation credit line. They'll offer a max amount like $500,000. Then your loan will be based off the agreed price from the builder.






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ScottieP
LSU Fan
Baton Rouge, LA
Member since Feb 2004
1688 posts

re: Land used in getting loan for new house


quote:

You could do that but I think it's more beneficial for him to include all of the land. Just my opinion.


I agree. Use value of land and extra $$$ available as equity.






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