Our lot loan is a simple loan to help clients purchase raw land. If the property has or can have water and sewer/septic installed than it is 25% down. If it doesn’t meet that criteria than we will allow it with 35% down. The loan loan is a (Example) 5.75% 15 year loan that has a rate fixed for 3 years. There is no balloon payment or timeline to build so the loan can actually go out 15 years but rarely does. Typically it is refinanced into our construction loan.

Our construction has a couple options. We can do a construction loan where we help clients buy land and do the construction all in one loan or we can do it where they already own the land. We have a portfolio construction loan that allows up to 90% loan to value and our conforming loans allow up to 95% loan to value. Our loan limits are anywhere from $50,000 to $2,000,000. We do a 9 month, 12 month, or 15 month draw process with the rates and fees increasing for each term. For your borrowers they will want to work with a construction company that can hopefully build in 9 months to get the best rates, but some of the bigger builds require the longer time periods. We do offer extensions but it is cheaper to go with a 12 month loan up front than to get a 9 month loan and then have to pay an extension for 3 months after the initial 9.

Construction draws: We pay based on what work has been done and typically we do that once per month.

Having the borrower own the land first has a big advantage for the file (whether free and clear or with a land loan it doesn’t matter). When the client owns the land first we get to use the completed value of the house instead of the cost to build value. This is assuming of course that the completion value is higher than the cost to build value but it results in the clients coming in with less cash to close, better rates, and possibly avoiding PMI on the file.

For example:

If you are buying $100,000 land and want to build a $400,000 house. The cost to build is $500,000 (the sum of the 2). The house might appraise for $600,000. (making numbers easy)

Client could buy the land first for $25,000 down and then the max loan amount would be $475k ($75k to payoff the land loan and then $400k to build the house). Because $475k is less than 80% of the value of the house the client only had to put down $25k to buy the land and now can build a house with great rates and no mortgage insurance and no additional funds out of pocket.

If the client doesn’t buy the land and does our all in one loan to buy the land and the construction loan the appraised value is now $500,000 (cost to build) and the client needs to put $100k down to avoid PMI and have the same rate as the first client. We can still do the loan for $480k but it will be significantly more expensive to the client due to higher rate and PMI costs.