So my husband and I are in the process of the land loan before the construction process loan and we JUST met with the banker a few days ago. We've had a rough time finding banks that do land loans anymore and a lot of them told us after COVID they just stopped this process at their bank and only switched to construction loans.
The way he explained it to us is we would need to get the land loan first, put 25% down cash of not just our loan (which they only fund up to 75% at our bank but I know some banks I've read do up to 90%) but also if there's a difference between what their assessor values the land at. We're looking to buy a piece of land that's priced right now at 150k (everyone including the bank thinks it is ridiculous as an asking price but we're working on that) and the bank warned us that if we paid the asking price for it rather than what they assessed the land value at we'd have to make up the difference in cash. But once we had the land loan settled with them, we have 2 years to get started on the application for the construction loan. When we're ready to start building the house is when we have to apply for the construction loan and at that point, we need to have everything ready for them: the construction plans including a schedule, a builder/company that they will be giving the money to in stages as the construction progresses and another downpayment of most likely 20%.
While the house is being built, we pay only interest on the construction mortgage as the money is disbursed. We have to pay the land loan the entire time (makes sense).
When everything's done and signed off on, they roll both loans into one mortgage for us.
@Anonymous yeah from what I've read, hardly anyone does land loans anymore. And you're right, it is a separate loan for the land, then construction loan when you're ready to build. So it hits your credit twice. Then when the house is finished, they both wrap into one mortgage loan altogether.
