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Is value of land considered as 'down payment' toward construction loan?

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Is value of land considered as 'down payment' toward construction loan?

I own a parcel of land that is valued at $200,000.  It is payed for.  If I want a loan of $600,000 to build a new house on it, is the $200,000 value of the land considered as a 33% down payment toward the loan?  If so, do I need to qualify for a $400,000 loan or for the full $600,000?
Message 1 of 5
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Community Leader
Super Contributor

Re: Is value of land considered as 'down payment' toward construction loan?

You'd only need to qualify for the $400k loan, but since construction loans are unique to each lender, only the mortgage lender you are getting your construction loan from can say without any doubt if your $200k in the land would go towards their down payment requirement or not.  Even if it does, some construction programs require you put some of your own cash into the deal so you are more apt to finish rather than walk away if things get tough.  For example they might have a 20% down payment requirement, but 5% of that must be from cash.

Helping people with mortgages (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
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Message 2 of 5
New Contributor

Re: Is value of land considered as 'down payment' toward construction loan?

Excellent info, Shane!  Thanks very much.  

 

One last question...  I assume then my monthly payment would be calculated from the $400,000 figure.  Correct?

Message 3 of 5
Community Leader
Super Contributor

Re: Is value of land considered as 'down payment' toward construction loan?

I think I migh've misunderstood that part of your original question.  If you are getting a loan of $600k then you need to qualify for the $600k, but if you only need a loan of $400k for construction then you only need to qualify for $400k.  Assuming you do need the full $600k to build the home, your $200k equity in the land (assuming you own the land free & clear) would be a 25% down payment on the "project".
Helping people with mortgages (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
Located in Orange County, CA and lending in all 50 states
Message 4 of 5
New Contributor

Re: Is value of land considered as 'down payment' toward construction loan?

Yes, I own my land free and clear.  The cost of constructing the home I want to build is $600,000.  So the equity in my land is considered as a 25% down payment on a $800,000 project.  Makes perfect sense.  Thanks very much.
Message 5 of 5
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