A few times I've sold a "to be constructed home" on a lot I already owned. So I suppose it's possible. I would want to be darn sure that the buyer was in a financial position to afford to close. That would require a substantial downpayment and a credit check.

You have a few options. You can get a construction-to-permanent loan, which involves only one set of closing costs at the start of building, and maintains the same interest rate throughout. You could also get a bridge loan which would get the equity out of your current house to use a downpayment on a new one.

Also many builders will finance and build a home for you with a deposit up front, and then complete the sale once it is complete. Large companies do this all the time in their own developments but some small builders do too.

Just flat out ask your builder if they offer builder financing and compare the rates they offer and terms.

If you can avoid getting a bridge loan it would be your best bet since they usually have higher interest rates. Hope this helps as I just went through the whole financing thing myself.

I guess this would be considered a "semi-custom" home. The builder uses his own money to purchase the lot and build the house and then you get a mortgage on the house after it's built. I think this is fairly common.

However, most builders are going to want a significant deposit up front because of the financial risk to them.

With most construction loans, you only pay closing costs once. When it changes to a regular mortgage, the loan just converts over, no extra closing costs. That's what we're working on right now - our house is almost done, and we just need to convert it to a regular mortgage.

What you could maybe do is find a builder who owns a piece of property that he'll sell to you, on the provision that he builds your house. That way you don't have to worry about finding the land, closing on it, and then closing again on the house. I would definitely get the bids lined up for the house construction, though, so that you can just do one buy through the bank.

Cheers!
Heather W

Here is a link that might be useful: Our experience with various lenders

In our area builders who own land will offer it for sale 'build to suit' and this would offer you that 'one time close' opportunity. Of course you have to find the right location owned by the right builder.

If the builder you are talking to tomorrow builds exclusively in subdivisions they might not be able to help you.
If you have any contacts among realtors you might try giving them a call. Some times there are agents who work almost exclusively in new construction, they are often very knowledgeable about local builders and who is 'sitting on' some good land and might be willing to work with you. I would think that they would still want some type of down payment to 'commit' you to the build though. Perhaps a home equity loan or line of credit would be the way to go.

Thank you for the quick responses. "Builder financing," I will ask about that. The builder is fairly large so they may do this. What we like about this builder is that they have a trade-in program of your current house so you know up front how much they will give you for your house and you are able to stay in it until the new house is done. We are going to talk more about this tomorrow too but I guess if they knew what kind of downpayment they would be getting, would be a plus for us.

I never thought of a bridge loan but I guess that would be a last resort if the interest rate is higher or if it's the only option we have.

Thanks again for the responses. I'll be keeping my fingers crossed tomorrow.

Just remember if you go with the "trade-in" program, there's no way the builder will give you market value for your home. Their incentive for the trade-in is to get your house cheap and sell it at a profit.

Oh yes, I know they wouldn't give us market value but I guess I'm weighing the cost and hassle of moving to an apartment and renting storage versus what they would give us. Also, when a house goes up for sale around here, it sits for a LONG time and after price reductions, it doesn't bring anywhere near the original listing price anyway. It could be that they wouldn't make much of a profit on our place either.

To protect yourself you should educate yourself *before* you make any big decision. It would be a good idea for you to know the market value of your home-based on the 'sold' prices of homes like yours in your neighborhood. The situation you are talking about - with homes selling after a long time on the market, way below their asking price reflects sellers/agents not pricing the homes correctly for the current market. The builder you are meeting with sounds like a large one, they may have their own agents who will do a market analysis on your home to find out what they could likely get out of it. For them to take the risk of owning your home and the hassle of re-selling it they need to make some money. If they do not make 'much' on the sale of the homes they take in trade then you have to look at other areas where they are making their profit. Some builders will offer you financing-they may make a great deal of their profit from this avenue of income. You really need to shop other loans and compare fees, interest rates, loan structure etc. We had some problems in our area with builders offering financing packages to buyers with their 'preferred lenders'. The loans were above market interest, had higher fees and prepayment penalties. The builders in question offered incentives to their buyers to go with the preferred lenders-they would knock several thousand dollars off of their asking price, which of course was not a 'real' savings just a way to get a buyer to go with their loan program. When such loans are sold to larger banks the originator of the loans gets 'back end' money in addition to their up front charges because the terms favor the lender vs the buyer.

Finally, even if the house trade in and the builder financing checks out, you still need to be comfortable with the builder's ability to build you the house you want with the level of quality you desire. To be honest it would surprise me if a large builder that offers these services and is building subdivisions would also build a single custom home on acreage or lot that you found.
Perhaps I am overstepping here and should just stick to the original question but I'm reading between the lines a little bit...
I feel a little concerned for you because it seems as if the convenience of having a builder buy your home and provide financing might be so attractive that you would jump on that opportunity without shopping around or really examining your options or the builder in question. Perhaps that would work out ok for you if you 'lucked' into the right builder and if the security and convenience of having some of the steps handled for you and not having to move twice is worth the higher cost you will pay. But then again you might choose the wrong builder for the wrong reasons. While the sale of your current home and financing your new construction are definately key to the success of the entire project, remember that the most important qualification of a builder is that they can provide you with a well built home. Perhaps you should get together with a good lender and learn about different ways you can make this work beyond the ones you have thought of so far. I hope that helps, and if I've misread the situation I'm sorry. :)
Good Luck!

If you find the perfect lot that is not in a neighborhood you need to be careful having a builder buy it for you.

The contract needs to be ironclad and reviewed by a good lawyer or you could end up losing your dream land to somebody who wants to build a bigger and better house. Or you could lose $$$$ and have a lot of wasted time.

Keep in mind that what you save on a possible second closing, you will lose in interest payments to the builder for the land. He's is not going to finance that land for you for free and will more than likely charge more than the bank for interest.

This is a sticky situation that I wouldn't want to put myself in.

Here is what we did.

1. We got lucky and found our dream land.
2. We got a home equity loan to pay for it. Shop around for good closing costs. This one was $99.00.
3. 3 months later we sold our home and paid off our home equity loan. So the land was 100% ours.
4. Found a builder then set up our own construction loan. $899.00 closing costs.
5. Final step coming in a few weeks, the construction financing becomes permanant financing. $799.00 closing costs.

We have paid the interest along the way each month. The builder offered to pay it and she would add it to the total cost of the home but we didn't want to do that.

About the downpayt part...Our land cost was part of our downpayment and we added enough cash to keep us at 80/20 financing so we wouldn't have to waste our money on that extra mortgage insurance that is required in KY.

I would just get a construction loan. You pay closing costs once, when you "close" on the land. You only have more costs if you go over the amount of time allowed for the build. The interest is tax deductible as long as you meet a few rules (have to plan to live in the house within 24 months). Plus, since you own the land, you have more control if you have issues with the builder.