HoosierBred, I will let you know we just went through this entire process about 2 months ago, but we are located in Central Ohio. We went through First Federal of Lakewood, but I think they only service Ohio. It looks like you are going with local banks which from what we have learned is the best route because they offer the most competative rates! Our bank is giving us 1 year to complete our build, we closed on the loan on the 23rd of December. We ended up with a rate of 3.39% and that is during the build and will be our final rate after the home is complete. We wanted to get out of PMI with 10% down so they broke our loan into 2- which is 80/10 thats saving us 300 dollars a month on PMI. With our bank we did have to have a purchase agreement signed and the builder was involved with the financing because they had to have the floor plans and costs and upgrades so they could do a paper appraisal (this was a one time close.) The appraiser actually went to our builders model to see the finishes and the quality of build and our appraisal came in 57k over what we are paying for the home including land. Now also what I have found out is many places charge a higher interest rate during the build sometimes 5-6% because you are paying interest only during the build, and then will lock you in at what ever the current rate is at the completion of the home. I do suggest taking a look at many places and finding out how their programs are structured and then once you find one that works best for you then doing the application! We did look into farm credit, but their rates were higher thank FFL, and they required 20-30% down with a back end DTI of 36% and with our current car leases we were 3% away from that mark. As well we had 20-30% down but we wanted to set asside a bubble for overages and we are also wanting to put an inground pool in and didn't want to finance that portion because a pool really doesn't add much value, other than pleasure. Hope this helps some (sorry I am not in Southern IN) -Clayton

Kelly When you say "We are in contract on the lot" - with whom? Is it an independent seller of the land or with a builder? if with a builder - what type (custom home builder or large residential builder like Toll Brothers)? These answers are needed to better help you out. If you put a contract on a lot with an independent seller of the land - then don't do a seperate land & construction loan. Simply wait until your current house sells and buy the land with that money. I will explain why in a minute. If you are buying through a custom builder who owns the lot, then don't do a land loan either. If you are buying through a large residential builder, the land and house are bundled together in the purchase price and the mortgage loan you get will cover both land & house. Only 1 loan is needed - and you don't close on that loan until the house is done. Getting a loan on bare land with no house on it is expensive (higher interest rates and harder to qualify ) because it is a bigger risk to a bank. It is usually harder to sell bare land than one with a house it (exceptions to this rule are in places like Malibu, CA). Why pay points, loan origination fees, and closing costs on a seperate land loan that you can purchase with cash? Typically when you apply for a construction loan, the land value is included as part of the estimated value of the house/land when it is complete. This is important because that total value will be used to calculate how much money you can borrow. Let's say your land is worth $50K (and you own it out right with no loan) and the house when complete is worth $350K (the appraised value) - then the total appraised value of the property when completed would be $400K. If you put 25% of your own money (the land value and your planned cash into the house is included) into the construction project, then the bank will let you borrow $300K for the house project assuming you qualify for that payment. Note that the appraised value of the house IS NOT the contract price for the new house. The construction loan can be seperate from the mortage BUT I would not recommend you go that route. There are banks who offer construction loans that will convert into the mortgage when the house is done. You close once on the construction loan (pay points & loan origination fee + closing costs) at the start, then you convert at the end and pay no other CLOSING costs. BUT watch out for this, at the end when you convert you will have to pay up to 6 months of estimated future taxes & insurance to seed the escrow account for your new mortgage loan so you will need to bring money to the table when you convert at the end (these aren't CLOSING costs per se but it is money out of your pocket). But at least you only pay closing costs and loan orgination fees once instead of twice. The way the construction loan works is basically like a line of credit. You only pay on the loan amount as you draw from the line of credit - and multiple draws occur as the house is built (5 to 7 draws are typical). These draws are tied to completed stages of the house like plans complete & permits approved, foundation complete, framing & roof complete, rough in plumbing/electrical/HVAC complete, drwall complete, painting complete, final finishes complete, etc. So during the construction process - your monthly payment on the construction loan will incrementally increase as draws are paid out to the builder. That is why I suggest that you use as much of your own cash to make the initial draw payments to the builder and then draw down on the construction loan as late in the process as you can. Reason is that you want to minimize your payments on the construction loan - which are essentuially just interest payments. If you are paying rent and construction loan costs at the same time you can see that minimizing the double payments for as long as you can make it easier on you financially. Example. let's say that you own that 50K piece of land and you have another $150K in cash from the sale of the house. You decide that you want to keep $50K in your pocket (to cover any possible overages - a good idea) and the other $100K to be used on the new house, and you have the $300K loan ready to go (so you have up to 400K to cover building costs on a project that should cost let's say 300K). So you start the project - you use YOUR $100K of money to pay the builder for the first 2 or 3 draws and the bank money money to cover the rest (you can also do a mixed payment where you put in some of your own money and you use some of the the bank money to cover a particular draw). So you pay the first $100K and let's say the house winds up actually costing you $325K because of a few oopses and some upgrades you decided to make. At the end, you only used $225K of bank money and $100K of your money. You only paid interest on the portions of the $225K as you paid the builder. You don't pay interest on the other $75K that you did not draw from the bank. When you convert the construction loan to the mortgage, your new mortgage will be for $225K. If you can use your money to cover the initial few payments to the builder you might not not have to make a constuction loan payment until 2 or 3 months into the build - and that is 2 or 3 months worth of payments that you keep in your pocket. In our build, we started the project in Sept 06 but did not make our first interest payment to the bank until late Spring 2007 which was nice because our house wasn't finished until Dec 2007 - 6 months late. You could do 2 seperate loans - one for land and one for house - but hopefully you get the point that you don't have to do it this way and it would cost you a lot more money (in loan fees and monthly payments) to have 2 seperate loans. I Hope this helps.

Hi jubileej, Something simple is missing here; It doesn't matter WHAT you choose to call the loan... "equity loan" or "construction loan" or "renovation loan" etc. You are ALWAYS borrowing against the remaining equity. I'd suggest getting a properly structured renovation loan in place. A good loan officer will walk you through the paces, which (in itself) will help gel your working plans & budgets, and FINALLY bring the project to completion for you. Getting the project done all in one coordinated process will be cheaper and less stressful to you overall, and then you will finally be able to get a standard, long-term financial plan in place. Luck! Dave Donhoff Strategic Equity & Mortgage Planner

There's nothing wrong with my language, weedyacres...that's why I was confused though because this method is not typical, like ncrealestateguy said. I've done a construction loan before, I've also researched a ton and I know how they *usually* work. We are actually being going to be paying PRINCIPAL on the full amount of the loan we're taking- land plus cost of construction before any draws occur. Then obviously after the draws begin we'll be paying interest on the draws. I guess the advantage is that we're paying a chunk of principal during construction instead of throwing only interest out the window. It was just super unusual to me and I wanted to see if anyone had heard of it. I tried to get the loan documents in advance and didn't see them until today at closing.