Reply
Regular Contributor
Posts: 236
Registered: ‎07-21-2007
0

Lot loan VS Construction / Builder's Loan

I am seeking advice: 
 
I don't know much about the ins and outs of loans.  I recently went under contract for a lot with intent to build (soon - hopefully). The lender (Capital One) that the broker referred me to is offering a 3 year fixed loan @ 8.5% (if you qualify) no matter how high your FICO / Beacon score is - The thing about this loan is the payment that they require is "interest only" for the 3 years.  They also offer a 7 year lot loan with the same interest rates but, the payments are higher b/c they require payments on the principle too. 
 
I can't seem to make sense of why I would want to do an interest only loan for 3 years and not just get the builder's loan (b/c at the end of the 3 years I'll still owe the entire amt. for the lot).  My main reason for thinking of the lot loan is wanting more house (thinking the income to debt ratio would allow me to get more house when the loan is paid down some) with hopes of paying the lot down some within a year or so and then adding the house in after which frees up some of that money to allow me to have more free for financing the house. 
 
Even in typing this, the lot loan makes no sense to me but this is what most people in the area has done.
 
1) I hope I haven't been too confusing.
 
2) Can anyone make sense of this or make me understand why people are going with the lot loan only?
 
3) Does anyone know about loans and issues as such to explain the difference?
 
(I am doing this by myself and feel I'll make the wrong decision and/ or be taken advantage of with this)
 
Thanking you in advance
Advertiser Disclosure: The listings that appear on myFICO are from companies from which myFICO receives compensation, which may impact how and where products appear on myFICO (including, for example, the order in which they appear). myFICO does not review or include all companies or all available products.

Copyright ©2001-2015 Fair Isaac Corporation. All rights reserved.   | Terms of Use | Privacy Policy | Sitemap

IMPORTANT INFORMATION: All FICO® Score products made available on myFICO.com include a FICO® Score 8, along with additional FICO® Score versions. Your lender or insurer may use a different FICO® Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more

FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Score and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.