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building a question

429 Views 3 Replies 4 Participants Last post by  Jennisee
Hello, so we are inheriting a big chunk of land from my grandparents and want to build a house on it. how does getting a loan work if we own the land? do we still need a downpayment? anyone know how expensive it is to clear land? thanks so much
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To build a house you will need to get a construction loan. Before the bank will aprove a construction loan for you, you will need to have a set of house plans drawn up so that they will be able to appraise it and decide how much the loan needs to be for. You will also want a set of plans for the contractor and to get an estimate for your own sake. Be sure to get a licensed contractor. I'm not sure how much it would cost to clear the land. It all depends on the amount of trees, access to the land, and what you want to have done. Get at least two if not three estimates and find out what they all include in their bid. If you are new to the construction industry I would hire a General contractor, they will take care of absolutely everything for you and line people up, it costs more but they know who to get for what and can save from costly mistakes. HTH.
Basically what I would do is go to a bank first. Find out how much of a loan you qualify for - it's just preapproval. You'll need house plans before you actually get final loan approval. Let's just say they preapprove you for $100,000 - that's just an example. Then you go find a general contractor and tell him you need him to build you a house for $100,000. You don't have to spend all the money. The less you spend building, the less you pay back. So you could be approved for $100K but if you get the general contractor to build a house for $80K then obviously you only pay back $80K. The bank will pay the general contractor from the loan money in increments as needed. Once construction is complete, however much you actually spent on building the house gets converted from a construction loan to a perminant loan (you sign another set of documents), and that's what you have to pay back. You shouldn't need a downpayment, but you'll probably have to pay mortgage insurance to the bank if you borrow 100%. You can talk to your loan officer about that.
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I'm not sure where you're at or how rural the area is, but you might check w/ your local Rural Development office (I found our local office by doing a Google search). My family has some land out in the country, and I found out that if DH and I build a house out there, we qualify for a 0% down mortgage.
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