Most banks now actually require you own your land. It all depends on what the house appraises for. The bank lends you money on the basis of your appraisal, so you will pay your downpayment based on that. Appraisals are troublesome for many these days, so even though you have already paid for the land, you may well find that you have to come up with at least 15 percent (many banks require 20 percent) more.

What you paid for the land is not important.

What the land is worth if the bank has to foreclose and sell it is the number the bank is interested in.

They are very likely to want more skin in the game.

As athens said, owning the land is pretty much the minimum. You can search this forum for the recent threads on this topic or look at recent sale price trends for what you are building. But why not save yourself time and effort and just call your lender(s) directly. They should be able to tell you what appraisals have been looking like and what they are requiring.

Most banks require 20% down payment. Major banks allow you to use the land value (if owned free and clear) + any improvements you can document (well, power, etc.) for the down payment. Talk with US Bank. They have the best program right now for construction loans.

Our experience has been that a local bank may be more flexible. We went with a national bank first for a jumbo loan, were approved for more than we needed, all was great, until the appraisal came in. It appraised for 2/3 the cost to build (and we own the land outright). The appraiser was not experienced in the type of house we are building, and is not local (a couple of counties away). There were also lots of errors in the appraisal (missed 1000 heated square feet, missed 2 full baths, etc.). It was a mess.

Rather than try to fix it, we switched to a local bank. They have 5 appraisers. They know them all well and personally (the national bank loan officer knew nothing about the appraiser chosen by their rotation), and have some more "control" over them. The house (and land) appraised for about 30k less than the cost to build - but it was still high enough to make the loan work since we are putting a fair amount of cash into the build in addition to owning the lot.

As far as crediting you the land value, that is not the way it works. They appraise the value of the house and land together, and you have to pay your downpayment based on that. So if your house and lot together appraise for 250,000, you will have to pay the percentage based on that. And most banks do require 20 percent, and if you pay less than 20 percent you will pay more in either interest or PMI (private mortgage interest required if you put less than 20 percent down).

"Our experience has been that a local bank may be more flexible. "

The big national players sell the note within a few weeks of closing the loan.

Smaller local banks may actually hold them and do not have to use Fannie/Freddie underwriting rules.

Our local bank is only requiring 15% down. However, they require a 15% contingency as well. The other local offered 20% down and 5-10% contingency (depends on the loan). Seems like a wash to me.

True brickeye, although the national bank loan we qualified for was also an in house loan. The appraisal was just way low.

As far as the 15 percent down, if the bank plans on reselling the loan (and banks resell almost all loans), they charge PMI for all loans under 20 percent. This will be stated separately from the rate, so I would check your estimated closing costs because it can add a significant amount to your payment (I think there is a place for it where they list taxes and insurance). In my experience, even if they are not reselling the loan, they charge a higher rate if you put less than 20 percent down. The contingency is separate from PMI. There are ways around PMI (like piggybacking a mortgage on top of the standard mortgage to get to the 20 percent), but it is there in one form or another.

"There are ways around PMI (like piggybacking a mortgage on top of the standard mortgage to get to the 20 percent), but it is there in one form or another."

The advantage to having things like a 75% first and 15% second and avoiding PMI is that the interest on the second is deductible on taxes.

Since PMI is now deductible the advantage is gone unless you earn more than $100,000.

I had a nice deal back in 1992 with a second mortgage that was $5 more a month than PMI, but after taxes was a much better deal.

It was at a higher interest rate (seconds almost always are) but was amortized in 15 years with a 30-year first.

When I sold after 12 years it was already down significantly since I threw extra money at it anyway.

Woohoo! Today we are approved for financing for end loan pending appraisal. Over the last six months we've picked a builder model and made some changes on paper and got the fixed price we want. Builder wants $6,000 non-refundable deposit to get contracts written and actual full plans drawn. The whole thing may fall apart once appraisal is done but obviously we can't get appraisal without full set of plans. Is this typically the way things are done?

The appraisal is what scares me the most. Our builder requires no money up front to bid the whole project and sent me to the lumber yard where he does most of his business to have the draftsman do up a new set of plans. This will cost $600 for the plans, but comes out of the material cost if we use that lumber yard for material. I've also done a lot of work getting my own subs quotes just to compare.

$6000 seems kinda pricey to get your plans and to say that it is non-refundable. Unless you're sure you'll get a favorable appraisal, I'd be leery of handing over that much money. I've dealt with a few builders over the last several months and no one asked for money up front.

Janilyn,

I would not give a builder $6K non-refundable since you may be at high risk of not getting a favorable appraisal. Check with your lender on the minimum needed for an appraisal; you should not need a full set of construction plans. All the appraiser needs is a basic set with a clear list of specs so they can tell the general quality (hardwood or carpet, granite or laminate, BR above grade), style, size, and ameneties.

You have to pay him to get contracts from subs? In this market, I would think they would be happy for a shot at a project! I have spoken with more than one builder wondering how he is going to keep his crew employed. If you have a fixed price, you don't need a contract to get an appraisal. Get that done before you spend any time or money working on details that will be moot w/o the appraised value necessary to make it work. Good luck!

Janilyn,
Our builder drew our plans, we paid approx. $1/sq. ft. (Ours is custom - plan drawn by us and finalized by build/design firm.) We knew the appraisal was hit or miss, but we also knew we would build that house eventually. We did get a discount (20%?) when we chose our desginer to also be our builder. So far, so good. Good luck!

Owning the land does help. However, another thing that goes into it is how long you have owned the land. Depending on how long you have owned it will determine whether you can use cost of the land or appraised value. The appraised value will determine how much you will have to put down.

For example, if you just bought the land, the house as built appraises for 350k, and the actual cost to build is 250k, then you have 71% loan to value. However, because you have not owned the land long, they will go with the lower of purchase price or appraised value, so 250k + 37k = 287k which is 13% LTV and you would need to put ~21k more in to get to 80% LTV. BUT, if you have owned the land for a while, the house as built appraises for 315k, and the actual cost to build is 250k, then you have 80% loan to value and you would not need to put in anything more to get to 80% LTV. Finally, if it appraises for less - for example, it only appraises for 260k and costs 250k to build, then you are at 96% LTV and would need to put 42k more in to get to 80%. In this case it would not matter how much you paid for the land or how long you have owned it.

I agree with calling around to a lot of different banks. US Bank might have a good loan program, however for our scenario, it was not the best deal out there. Some of the ones I found to be competitive included RBC Centura, Suntrust, BB&T, Wells Fargo, Fifth Third Bank, and some other banks that are very local to our area only.

Janilyn, the builders that we interviewed were all able to bid based on plans we drew ourselves in 3D Home Architect / Chief Architect. None of them required any money upfront to bid on the job. Only after we narrowed down the field and then chose a builder did we have the final plans drawn by an architect. If you are choosing a builder model and making minor changes to it, I do not see why he would require money upfront. The appraiser may not necessarily need the final plans either. They can likely appraise with the builder model plans with your changes written in on them. Only once you go under contract with the builder, they often require a downpayment upfront. I would have the appraisal done first before handing over 6k nonrefundable.

Thanks, Everyone. The bank says builder model plans with the changes written up for wheelchair accessibility, etc will be enough. Hoping the builder will cooperate without 6 grand! Will know tomorrow. Thanks Again.

You'll still want to put in the 15%. The bank will look at what the land is worth (if you were to default on the loan) but will most likely still require 10-20% down. You may also want to check with the contractor as some bigger home builders have their own financing options.

I paid $5400 for our plans, also non refundable but deducted from cost of home if I went through with building. It all worked out for us, thankfully.

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