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How to Finance Land Purchases and the Construction of Your Home

The finance process involves four main issues:

1. Type of loan, for land only or for construction
2. Collateral required – type and amount
3. Interest Rate charged – amount and conditions under which it can change
4. Features of lending agreement, such as right to payoff without penalty.

Of these, the type of loan and the collateral are the most easily misunderstood

Land Only being financed: In a straight land purchase (construction is postponed) collateral will be needed. Common approached are to use equity in existing real-estate, a “line of credit” loan, or a loan on the value of securities in a portfolio. An alternate is
Collateralized Land financing. While most institutions want the borrower to use additional collateral such as an existing home, or securities, there are some local lenders who will collateralize the land itself. This is a great advantage in that it frees up other sources of capital. We can give more details to purchasers as the pros and cons of each of these approached.

Construction Finance: when the home construction is to commence immediately upon buying the land, this would be the preferred method. The down payment amount (frequently the price of the land) is the collateral, and purchase of the land begins this process. Payments are drawn against construction progress to pay the builder. At occupancy the loan is converted at no extra charge to a mortgage. Term and rates are specified at inception so there are no surprises. Most local institutions offer one closing construction financing.

Availability of Financing: Our sources tell us that financing is available at favorable rates currently. This area has escaped the turmoil of other regions of the county as far as mortgage troubles are concerned.

Stagebridge has experience in financing land purchases. Please contact Stagebridge for more information and a detailed discussion for your situation since there are several factors to consider in order to achieve a good financing package.


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