Red flags abound: - A newly built house, even a modular, isn't likely to be less expensive than an existing house (much less a "foreclosed shack"). I think you're using some fuzzy math here; for example, you may have underestimated costs in some places. The world just doesn't work this way. - If the FHA people won't loan you any more than the house + 10K, you shouldn't try to stretch yourself farther. Borrowing as much as the bank says you can borrow typically ends with you being house poor ... and you're talking about borrowing more than they say you can afford. - When you talk to the bank, you will have to disclose any other loans you're carrying. If you're doing an owner-finance deal, you must disclose it. That will change your finances and very possibly decrease the amount they're willing to loan you. - What you don't say speaks volumes: You don't say how much cash you have to put down. If the answer is "nothing much", you really can't move forward on this project. My best suggestion: Save. Work, scrimp and save, and then come back and buy the land outright in a couple years. THEN you'll be ready to build the house, and -- yes -- it will still be available. Once-in-a-lifetime deals aren't real.

I know you mentioned "owner financing" but I tend to be leery (both as a buyer and as a seller) of owner-finance deals. Do read the link below. We bought the land for our current dream house about five years in advance of starting to build our house so I learned a few things along the way that might be helpful to you and may suggest another avenue for you to follow. First and foremost, land only loans are notoriously hard to get - even for property within a neighborhood that is already developed in terms of utilities. There just are not that many lending institutions that make land-only loans. Plus, the interest on land-only loans is MUCH higher than on practically every other kind of loan. In 2003, we bought 4 acres in a development that, I suspect, is very similar to the one you're describing. Price was right at $50K for the 4 acres. In 2003 mortgage and construction loans for those with good credit were running around 4.5 to 5%, and we could get a loan to buy a car or even a motorcycle for about 7%. But every place we asked about a land only loan wanted 8.5% or more! I have no clue why this is. It's not like one can abscond with a piece of land, or wreck it in a crash and then refuse to finish paying it off. But that's the way the market is. On an owner finance for a land-only deal, I would not be at all surprised if the seller wanted a percentage point or two above what banks are currently asking for on land only loans. After all, if the seller originally purchased the land by taking a land-only loan and still owes something on that loan, he's going to want to get enough to pay back his own loan plus make something for his trouble. When we decided to buy our new land, we already owned a home and had significant equity in it. So we realized that we could do "equity out" refinance on our first home and use the money to buy our land out-right. Because interest rates had fallen significantly since we'd first purchased our house 18 years previously (a 30 year flat rate), even after paying the fees to refinance, we actually came out ahead. Our monthly payments stayed almost exactly the same (the difference was less than $10/month) and even though we had taken out $50,000 in equity, the total remaining pay-out period only changed from 12 years to 13.5 years. We then started making extra payments each month and actually finished paying off the original mortgage plus the additional $50K loan in just five years more years. So the upshot is that we basically got to "borrow" the $50K to buy our land for free. So, if you already own a home and have equity there, you might look into a home equity loan instead of an expensive land loan or taking the risks associated with an owner-finance deal. The other thing is that, when you are ready to start building, the bank that makes your construction loan is going to insist on having foreclosure rights on the land the house will sit on as well. (That's reasonable since it would be pretty much impossible to foreclose on a house without foreclosing on the land it sits on!) And the bank is NOT going to want to be the junior lien holder on the land. So yes, you will have to finish paying off your land loan either before - or concurrently - with getting your construction loan. Whether a bank will loan you enough to pay off the land AND build the house you want is pretty problematic. Banks now typically will only loan 70% of the value of the finished property (house and land) and they expect the homeowner to put down the other 30%. If you own the land free and clear when you go to borrow construction money, you can claim its value as part of your 30%. If you still owe money on the land, then you are going to have to ask for a bigger loan (so you can pay off the land) and will have less equity to apply to your 30%. The bank that is going to make your construction loan won't care if you pulled some of your equity out of a previously owned house in order to buy the land outright. As long as you own the land free and clear, it's value can count toward the 30% you'll need to put into the new deal. Of course, one of the questions the bank WILL ask in determining how much of a loan you can qualify for, is how much you are currently spending on mortgage payments on unrelated property. But they don't care how much or how little equity you have in the unrelated property because they can't foreclose on that property if you fail to make your payments on the new place. Anyway, it's just an idea. It worked very well for us and might work for you. Here is a link that might be useful: Pros and cons of owner financing for buyers.

Building a custom home on land you own is different from buying or selling an existing home in many respects. For starters, the appraisal will be based on plans and specifications vs. tangible product. The market comparables used for the appraisal of your home may not be very comparable to what you intend to build. The appraisal process is highly regulated, and is pretty much dumbed down to no. of bedrooms, no. of baths and total finished living area. Don't look to inject any sanity into it. Many lenders in our (coastal VA) area use an 80% loan-to-value ratio which means they'll loan you up to 80% of the value of the total package (home and land.) So, if you own your lot and it represents 20% or more of the value of the home/lot package, you can finance all of the construction costs. Best wishes for a successful project.

Talk to your bank. I am in the process of getting a C2P with land I have paid off. What the bank did on the loan was simple. They took my bank accounts, added the value of my land, the value of my current house and called them "assets" Then they subtracted my debt which for me only included credit card debt and real estate taxes but I would assume most may have car loans, mortgauges etc. Using that they came up with a total personal worth. They also compared my monthly income vs the expected monthly payment for repaying the loan. While my payment is going to be about 50% of my monthly income, because my personal worth is enough to cover the entire project, and I have no other outstanding loans and very small CC debt the loan should fly through with ease. I already know this because 4 months ago I sat down with my lender when we got an initial "final" number from our builder and asked her to tell me if I would be approved for that amount or if I needed to start cutting stuff out to get to a lower number. So before I even submitted the final documents I knew what they would give me. Also, at my lenders suggestion, the builder added some extra contigency money to the key contractors bids (framer, excavation, roofer, HVAC) when we submitted the final numbers, so I should have a larger loan approved than I actually need to spend since I don't plan on making any change orders. Every personal situation is different, every bank can be different. Talk to your lender it is the best way to get the answer for you.