Understanding Lot and Construction Loans
You're thinking of building but really have no idea of where to start. Today I sat down with a US Bank Lender to get some clarification and information to help with Understanding Lot and Construction Loans.
Here are some basics on Lots:
Lot Loans are pretty simple. They basically will depend on whether the land is improved or unimproved:
Improved will be those in a development with public sewer and water available. These require 20% down for a loan amount up to $300,000. (More down over $300K.)
Unimproved will be those in the country per say that will be on septic and or private well. These require 25% down up to a $300,000 lot and more down if over that.
The loans are amortized for 30 years, fixed for 3 years and then adjustable.
The lot loan will need to be paid off before a construction loan can be given but the funds to pay it off can come from the construction loan.
On to Construction Loans:
Constuction loans require 20% down. If you have owned your lot for one year your initial downpayment for your lot loan will incorporate into the calculations but the increase in value of the lot itself also comes into play.
US Bank does an All-in-One loan where they don't have two separate closings. The loan is amortized over 30 years with the first year as the building year with the loan payment being interest only based on the draws so get bigger with time. (Like your credit card would be with more charges.) The other 29 years - payments would be principal and interest.
Options using today's rates - up to $1Millon:
1 Year - 3.25% - where that year is interest only and the remaining 29 years would have an adjustable rate based on the 1 year Treasury Bill +2 3/4 %.
2 Year - 3.125% - where the first year is interest only, 1 year is fixed at that rate with principal and interest due for each month's payment, and the remaining 28 years have an adjustable interest rate.
3 Year - 3.5% - where the first year is interest only, 2 years are fixed at the rate with principal and interest due for each month's payment, and the remaining 27 years have an adjustable rate.
5 Year - 3.625% - where the first year is interest only, 4 years are fixed as above, and the remaining 25 years have an adjustable rate.
7 Year - 4.125% - where the first year is interest only, 6 years are fixed as above, and the remainging 23 years have an adjustable rate.
10 Year - 4.375 - where the first year is interes only, 9 years are fixed as above, and beginning in year 11 the interest rate is adjustable.
Just for a comparison as to how these rates compare to a conventional 30 year loan - rates today there at US Bank are around 4.5%.
Loans are still available over $1Million for slightly more.
Some other things to note:
There are NO pre-starts - the lot should be undisturned as the Title Company will have to insure it so that the bank can be in first lien position. Until the loan is in place, the lot should not be touched even to the point of such things as having a portable toilet dropped off, dropping off a tractor, dropping off forming boards for the foundation. Doing so can delay the loan process for weeks.
The Title Company will be involved along the way as they provide differnt endorsements to the bank regarding the insurability of the lot. They will make an inspection after the foundation is in to make sure it is on the correct lot for the Foundation Endorsement. At the very end of the project, they will provide a Lien Free Endorsement guaranteeing that all the liens for supplies and labor have been cleared.
Once the loan is in place, the Builder/Contractor will make draws for the work with the owners approval. The draw has to be signed by the owner before it will be released. The bank will do inspections with each draw as well and the builder will need to provide a full lien release on the previous draw prior to getting their next draw.
If you have more questions on understanding lot or construction loans- Please contact Cathy Anderson with US Bank, 916-599-9976 or firstname.lastname@example.org. As with any purchase where you will be needing a loan, you will need to be pre-approved and have a pre-approval letter in hand before making an offer on a lot.
If you are thinking of building, I would love to help you find your dream lot! Please don't hesitate to call or email me. Here are my land and lot listings at the moment:
I am a REALTOR® in El Dorado Hills with Lyon Real Estate. I love living in El Dorado Hills, where homes with views have become my passion. Working with both buyers and sellers, my concentration on homes for sale includes not only El Dorado Hills, but also Folsom and the Cameron Park vicinity. For more information on me or our wonderful area visit my website at www.DeeDeeRiley.com or email me at email@example.com. When you're ready to sell or buy a home – I would love to help! To read what my clients have to say about me and my service, visit my Client Testimonial page.
By DeeDee Riley 2013 *All Rights Reserved*Understanding Lot and Construction Loans
DeeDee Riley - El Dorado Hills Realtor - Lyon Real Estate - CABRE#01499004
When you're ready to sell or buy a home; I would love to help! To read what my clients have to say about me and my service, visit my Client Testimonial page.