Holly, MFatt: The land is being sold by a third party, not the builder. The P&S is conditional on all the build elements coming together. It's a strange process. To buy the land, we need to be able to afford the house we want on it. (there's covenants stipulating the size/type of house that can be built. We couldn't build small then expand, for instance.) To know the cost of the build, we need a builders quote. But first the builder needs plans. Have to design plans with an architect. Pay the architect, submit to builder(s), recuperate from sticker shock, go back to architect and redesign, get another quote. When that's settled, need the bank to spend a couple months studying the documents from the architect and builder. Sigh. If I just had an extra half million dollars or so lying around, this could be much easier. Story of my life... ;) Anyway, our plan is (or was, depending on whether the bank allows it) is to file the loan application, and in parallel to it processing for us to close on the land, then pay out of pocket for the site work and foundation. Hopefully we can find someone at the bank who doesn't think this is an unusual occurrence.

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.

Some other important questions to ask ..... Is there a penalty for paying MORE than the minimum scheduled payment? Can paying more than the minimum lower your total long-term costs? How fast are you allowed to pay the amount back without penalties? Getting double what you were looking for would be nice, as that would initially make your payments worry free (since you have twice what you need, just leave a ton of it in the bank) and it also makes for a good safety net in case of minor or possibly major cost overruns ... (wife suddenly decides that she wants to splurge on a nice hardwood floor, which is a good idea in the building stages since it's hard to do it later.... or perhaps you decided to upgrade the siding or fencing or put in a pool in the back yard, ect ...) Even so, being able to make larger payments or extra payments helps to knock down the principle of the loan, so that your interest payments are lowered. The problem for the bank is, that if the interest payments get lowered, they get a LOT less money, so some of them arrange for penalties that you'ld have to pay for making early or extra payments.

We only have 5% down because we are selling our current home, we have a good income and even with 2 mortgages we are not overdoing it. If our current home doesn't sell we will rent it out, it's a condo in desirable location and easy to rent - but it will certainly sell. This is actually a condo not a townhome technically but an end unit with no one above, below or to one side so in that way it feels more like a townhome. The comps for this property are about twice the list price of this home, it is in a desirable neighborhood and this area is a market not hit much by any slump and already regaining momentum. We're not asking for advice on our personal financial decisions or the wisdom of purchasing this home -we have all the details and we're convinced that it is an excellent investment as well as being a great place for us to live for a few years - so close to work for both of us. We have not had a home inspection yet as our offer has not been accepted yet, so we don't have the full details on plumbing electric etc but all the fixtures work and the faucets and toilets etc work. This will be our second condo purchase so we are very familiar with HOAs what to look for etc. We don't need guidance there. $25k is not very much in the context of the california housing market, LOL and the property post-reno will be worth more than an additional $25k. We will be able to repay the renovation costs within months of buying, it's just the time frame of down payment, closing costs, moving costs and overlapping mortgages etc that will not allow us to free up the cash to do the basic renovations before we move in. This is an REO not a short sale, close of escrow will be very fast. What I would like input on is the Home Depot and Lowes Project loan or other similar line of credit type home renovation financing (credit union personal LofC?). Have you used them, how were the contractors (you have to use theirs) etc etc.