If you are talking about owner building I can tell you from my experience just last year that the bank wanted a cost analysis on the build of the house.
Then they wanted the land payed for to use as collateral then like 45% of the cost of the estimated home value down.
They (many different banks) just do not want to take any risk on a owner/builder unless there is no way they can loose any money in the deal. Owner builder loans are possible but I would say keep as much cash on hand as possible. Going in debt with a HELOC would not help you in getting a construction loan no matter what you used the money for.

Many banks are requiring you own the land outright before they will give you a construction loan, and I have even heard that some banks won't consider your equity in the land as the 20 percent (or more) down they are requiring. So, under this scenerio, you would have to own the land outright plus have at least 62,000 cash to get a construction loan.

I think I would talk to your bank and see where you stand. Some of this is regional so what is true in some parts of the country is not true in others.

I am not talking about owner/builder. We have a local builder with a good reputation lined up.

I have briefly spoken with a couple of banks and they are willing to roll the land loan balance into a construction loan.

I am planning on talking with banks a little more in depth. Our credit is excellent and we have no debt except our current mortgage and about 10K on a car.

Just wasn't sure if equity in the land was looked upon more favorably, or we should just stick with what we have for now and keep saving up cash. The whole process is frustrating, we have had the land for almost four years now and I am getting anxious to get started!

I would not get that 50K helok TO PAY INTEREST to have equity on a lot.

You need to go to the bank, explain them that you have the lot but its not paid off, and a total of 85k (part cash, part helok) which is 27.4% of the total price of the home you want to build. You have to give them the impression that you have everything figured out including the plans.
If you are going to be the general contractor you need to find reputable subcontractors and explain to the bank that you will not be the one doing the job and give them the list and prices (if you need a standard form that GCs submit to banks with subs/trades/prices involved contact me)

Everybody does not have the same luck and circumstances. It depends on many factors including salaries, expenses, credit history, and the price that the house will be when is built.

gooddogs,
I opened your post but had to do something and did not see your answer. disregard the comment about being the GC.
Do not get the helok. Talk to the bank first.

So it seems the total cost of your build will be $425. Let's say your home appraises at $400. If you're loan was structured like ours, the bank would loan you a total of $320(80% of the appraised value).

Banks are really picky right now. We had to sell our old home to get the equity out. Like you, we were living at our previous home for dirt cheap, but in the end I'm glad we did it. Building a home is a very time consuming and emotionally draining process. I'm happy I don't have to worry about selling a house on top of that. It does mean 2 moves, but it's not the end of world. Just an option to consider.

Thanks pps7

I think we may have to end up selling first, just trying to avoid it (have several animals to move, extra expense, etc). We can't rent a small apartment for what we are paying in mortgage right now. I think I will sit on the cash available in the HELOC--its already open with zero balance, and we still have probably about 30-40K more equity on top of the HELOC if we actually sell. Frustrating for me, but I can't do anything about the economy. I don't think we will have enough once we add up the cost of building, closing costs, etc, etc, etc. I also don't want to spend all our savings--you never know what could happen. I will be speaking to some more banks once we get our final plans. Wonder if anyone experience with mortgage brokers too?

Thanks to everyone

Borrowing on the HELOC to pay down on the land loan is just a shell game. And if the HELOC interest rate is higher than the land rate (?), your cash flow is negatively affected.

I'm not trying to be ugly, and I *am* new here, but wouldn't you be better off waiting a few more years and saving more money? It took us 6 years of saving, 4 of those after we purchased our land with cash, before we felt like we were in a place to be able to afford the house we wanted. It just seems to me that if you're having to scramble and try to shift assets and play games with your money, that maybe you need to step back and reassess what you're doing.

Vonda

Well, we probably are going to have to wait. I am not going to do anything risky (I am very risk averse). I just wasn't sure if it offered any financial advantage. Obviously it doesn't (except a bit lower interest rate on HELOC) so I am not going to consider it. We have already been saving for years too, I am not rushing into anything, thanks for your concern. We have no time frame we have to build by, and the plans are almost done. I'm just excited, that's all, interest rates are good, etc.

Well, if your still looking, here's my 2c.

First you need to talk to banks, and see if they are more interested in your liquidity, or your DTI ratios (debt to income).

If they like customers that are liquid, then the HELOC would be helpful because it will raise you liquid available cash - assuming the added monthly payment on the HELOC will not make your monthly debts more than about 38% of your gross income.

If the bank seems more concerned about how your monthly cash flow looks - or DTI, then the HELOC would be a negative feature because it would raise your monthly debts.

I am a mortgage broker. I was not able to do my own construction loan. In my area, as a broker, there just aren't construction loan options anymore. Call lots of banks. I found the rates all over the place because this is a portfolio loan for a lot of banks (they do not sell loan on secondary market). Call a lot of builders as well, they may know banks still doing construction loans. Also, ask the banks when you are talking to them if they know of any other banks.

I highly recommend calling around to the local banks (local meaning within your state, not just within your town) ... I found many in our area that had some great construction loans still available. Some of the bigger banks that had some good programs in the last month in our area were Wells Fargo, BB&T, RBC Centura, Suntrust. I found many other smaller banks that had some loan options as well.

Be straight up with them about your pluses and minuses as far as financing and your personal situation. If one idea does not work (i.e. paying down the land with the Heloc), ask them if they have other ideas on how to get it done.

I can't really offer you any good advice- but we are in somewhat of the same boat. It is SO frustrating with the economy right now. We were given an estimate of $350,000+ for a Garrell Associates plan (very cut-up plan with a lot of architectural features). We should have a good deal of equity when our house sells, but not the $90,000 that Wells Fargo wanted plus 10% in liquid assets. We are both under 30- great jobs- but no where near that kind of money sitting around. There are NO houses in our area that have appraised for over $300k in the last year- so no comps! Some mortgage companies are even appraising homes by just the square footage without even looking at the plans- which in my case- is not acceptable.
Good luck to you! We are meeting with another local bank next week! :)

check with smaller banks. I have found they are more personal and willing to work with you. We have a bank in our area that as about 4 locations in various towns.
I am doing a owner builder, and to qualify they look for enough experience in order to loan the money safely. They understand that, hey, a owner can have construction experience! Infact, we do not even have to put 20% down. Assuming it appraises for at least 20% more then the loan, they will count the sweat equity as the down payment. Houses in the area are appraising in the high 200k, and so far total material costs including land and license required subs is around 160k...
best of luck, I would say check around to other banks. Our loan right now is through wells fargo on our current house (we will sell before building and then rent) and we have to jump through way more hoops then with the smaller one. Find a bank where funds are "in house" like the one I found. They are more willing to work with you.

We got our loan from a small bank in a small town. Our only problem now is we need about 35k more to finish, since our first builder turned out to be a scam and made a mess of our house and took off with lots of money. We're hoping the bank will give us the money to finish. We will be close to finished when the money runs out. The remaining money is to pay the builder and finish up the electrical and heat. I can't handle waiting.

We have a claim against the first builder's insurance company for negligence, but I don't have much faith in the justice system anymore, so I don't even consider the possibility of getting any money back. We've had such bad luck in this whole process, I just keep assuming the bank is going to tell us we can't get the money and then I don't want to think about what we'll have to do. We've done a pretty good job of not using credit cards. We've used cash to pay for quite a few things. My broker is just dragging his feet on gettng this appraisal and it's killing me. I met with him in August to set up another appraisal so we wouldn't be in this position of wondering as we're getting to the end of the money, and we still don't have it. So frustrating!!! Thanks for letting me vent.