We bought a lot first, using cash as our down payment. Then we decided to move ahead with construction now rather than later. We were able to use the equity in our lot (from our cash downpayment) and the equity in our current home to secure our construction loan. Since it hadn't been more than a month or two since closing on our lot, the bank actually redid the construction loan to include the lot, so the lot was the first "draw" on the construction loan. We did have to pay closing costs on the first loan, but we won't have to repay for the title search, etc which was the biggest part of it. Shop around and start with the smaller, local banks. They seem to be much more willing to be flexible.

We ended up taking out only a lot loan to purchase our land. The bank required 20% down (which you could use your equity for). Then we took our time (2 years) to design the home, permitting and finding the right builder. We recently sold our home, moved into a rental house, and are going to start construction in a few weeks. We're getting a construction loan which will pay off the original lot loan as part of the first draw (similar to chellefnp) and then it'll be a typical construction loan.

Buying the lot ahead of the construction loan actually helped us. Banks viewed it as "owning" the land (even though we were still making payments) - and we were able to get better construction financing terms.

Thanks. I am going to explore some options this week to look into buying the lot. The price is right and it has installed septic and city water, plus a well, it is all cleared. All of those a big money savers. Hoping we can use our equity in existing home as collateral for the lot. Will see.

Yes, you could do a home equity loan and use that as a down payment on your construction loan, as long as your income covers both loan payments. That's what we did.

I talked to a couple of banks. We have used Wells Fargo for our last two mortgages. They will not do a land loan at all, they would do construction but not until we sell and they would require a substantial down payment. I talked with a local bank that would do a combined equity line on existing home and land loan. The land loan would be amortized over 20 years with a 5 year balloon. Not a bad option. At this point I need more info, need to get a realtor in to see what we can put our existing house on the market for, need to get some numbers back from the builder I am looking to work with, and a second builder to get a cost comparison. I am hearing that things like concrete are through the roof right now? But who knows. I plan on doing a lot of work myself, insulation, painting, floors, cabinets, much of the trim, my dad is going to do the electrical. Hoping I can make the numbers work.