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re: Can someone help me understand how construction loans work?
Posted on 4/3/24 at 8:37 pm to thatguy777
Posted on 4/3/24 at 8:37 pm to thatguy777
Good info thanks. If the land value is less than 15% of total appraisal does that change anything?
Say for instance the land is worth 10k and construction cost is 170k
Say for instance the land is worth 10k and construction cost is 170k
Posted on 4/4/24 at 3:04 am to Random MsState Fan
It’s pretty simple but sometimes it can get confusing.
The bank will have a “paper appraisal” done on the plans and the lot. This combined appraisal will be used as the basis upfront. Your loan will be limited to 85% of this value.
It’ll be divided up into 4 or 5 withdrawals.
If you don’t need to use it all, great. If you spend out of pocket to reduce loan amount, that works too.
Ultimately, at the end of construction, however much you have withdrawn from the bank will be what your final loan amount is. You’ll then finance this amount at the final interest rate/etc. depending on if you have a one-time close or not.
The bank will have a “paper appraisal” done on the plans and the lot. This combined appraisal will be used as the basis upfront. Your loan will be limited to 85% of this value.
It’ll be divided up into 4 or 5 withdrawals.
If you don’t need to use it all, great. If you spend out of pocket to reduce loan amount, that works too.
Ultimately, at the end of construction, however much you have withdrawn from the bank will be what your final loan amount is. You’ll then finance this amount at the final interest rate/etc. depending on if you have a one-time close or not.
Posted on 4/4/24 at 7:22 am to Random MsState Fan
It depends what it appraises for, but in my experience its going to appraise for the land value plus construction costs. So if land was 10 and construction 170 you will get 153.
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