Using land as a down payment?
rjinga
7 years ago
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7 years agolast modified: 7 years agoUser
7 years agolast modified: 7 years agoRelated Discussions
Buying land as downpayment
Comments (2)You have to wait until you have enough cash on hand to put 20%+ build cost down on the house, or have a paid off lot that is worth more than 20% of the construction cost of the home, when appraised together with the future home. Or best case scenario, both. Because you need a contingency. No bank is going to loan you 500K to build your dream home if the end result isn't appraised at least at 600K. And no 600K total cost to build home, land included, is worth 600K when surrounded by 100K homes. If it appraised at 200K, you're gonna need to bring 440K to the table as a start. Land is only valuable as a location for the home. It has no true defined static intrinsic value, separable from the home. Because that ''purchase value'' is irrelevant to the build costs once the home build starts. The house and land are not separable....See MoreBuilding a home, land as equity and down payment?
Comments (4)If you are still wondering "where is the money that I spent on the land factored in?" then lets pretend you didn't own the land already. Total cost to build is the construction cost plus the land cost. So the total cost is $785,000 + $112,000 = $897,000 Appraisal after the fact is still $875,000 so the bank will loan you $700,000. You need to come up with the difference between $700k and $897k which is $197k. The basic concept to grasp is that the cost to build is not necessarily equal to the value after it's built. Someone could design a really stupidly designed house that cost 2 million dollars to build, but the resale value after it's done is only $500k because nobody else would want the house. The bank isn't going to lend you anywhere near the 2 million to build that house because that would be a horrible investment. You'd like to think that the cost to build and the value after is similar, but a lot of variables play into it. One factor that is playing against you is that you took two buildable lots and made them into one. That lowered the value right there....See MoreInterest rates on NJ down payment assistance
Comments (6)^ncrealestateguy is right. Agree with him to check another lender. IME those first time home buyer programs have either higher interest rates or much higher closing fees or a combination of both. There are also stringent income caps on the programs I have seen in my area (I'm a Realtor) and you can't exceed the income by even $1 per year. There are asset caps. Many sellers won't accept an offer if you use the program because there is always more demand than the available funds so a large percentage of these contracts fail to close. There are zip code restrictions. Some of the programs are not bad, but most of the programs I've seen have exorbitant fees wiping out any benefit to the buyers for using them. In some markets you can still get the sellers to pay some of your closing costs but it has to be negotiated in the contract up front. This way you get a benefit without all the detriment of using a badly designed first time home buyers program. That will help with your closing expenses. Find an excellent Realtor to help you....See MoreDown Payment is before/after build?
Comments (9)Before. How much of a down payment you need is dependent on a few factors. Banks will typically lend about 80% of the appraised value of lot/house after the construction is done. If you own the land outright, then the amount of cash that you have to come up with is the difference between the 80% appraisal value and the construction cost. That value could be nothing (if the land is extremely valuable) or it could be significant (if the construction cost is high and doesn't correspond with the value of the finished product). To visualize the concept above, picture these two extremes. (1) The land is extremely valuable and you want to build a shack on it. The bank will lend you the entire cost of building the shack because if you default on the loan, then they get the land and shack which is way more valuable than the loan that they gave you. (2) The land value is insignificant and you want to build a hideous monstrosity of a house that nobody but you would ever want. The cost to build the house is astronomical because of all the unique quirks that you want and the value of the house at the end is negligible because anyone in their right mind will just tear it down and start over. The bank will only loan you a little amount (80% of the finished product) because most of the value is just the land and if you default then that's essentially all they get . You need to come up with the rest (ie. the bulk of the construction cost). Most situations land in between those two extremes. Where you land depends on your specific situation. A key concept to understand is that the appraised value is NOT the raw value of the land plus the cost to build the house. Hopefully it's close, but it isn't guaranteed....See Morerjinga
7 years agoUser
7 years agolast modified: 7 years agomihelene
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7 years agolast modified: 7 years agogreg_2015
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