Valued Member
Posts: 45
Registered: ‎04-20-2012

Lot loan/construction loan question?

Looking to purchase a home this summer. We have been considering more and more buying land and having a home built. I asked my banj a few general questions but get conflicting reports, maybe someone can clear things up. 


Found a piece of property for $170k. First question, do I have to own the land outright before I get a construction loan to build?  I'm assuming yes. 

So say I pay this land off in a year or two, I want to build a $300k house. Can I use the land value for equity and get a loan against it to help with the downpayment?   I was told I need 20% down for construction loan.  so wil I need to pay land off then come up with $60k before I start building or after I pay land off, can I get a $60k equity loan out on the property for the payment?  Bank guy said I couldn't use land for equity, but others say you absolutely can. I'm a few months away from a decision but just wondering thoughts out there. Thanks

Valued Contributor
Posts: 3,302
Registered: ‎06-09-2010

Re: Lot loan/construction loan question?

If you have equity in the property then that equity can be used to help secure the loan. If you have no equity then it can not be used. Just look at this from a different stand point. If you are using your land for equity as an example, and you paid 170K for the land, if you default on your loan they own your land also, since you used your land to secure the loan.


Depending on Lender you may or may not have to have 20% downpayment for construction loan.


You may be best to find a Lender who will issue you land and construction loan. Requirements are little stricter, rates a tad higher, but overall a much easier process.

Good Luck
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