Re: Buying land - Posted by Ed Garcia
Posted by Ed Garcia on February 25, 2001 at 24:27:41:
You seem to be in good shape.
Let me respond to your questions.
We are looking to buy a view lot which start around 200K. What is the best way to do this?
A lot depends on what you want to do. I would just pay half down. The reason is with half down, I can get a land draw to do my construction loan. If you wanted to, you could ask the seller to carry and then subordinate their position to a construction loan. In your case it’s a matter of preference.
Should we ask for owner financing on the land, a good % down with a 8% loan and a ballon payment in 3 years. Then obtain a construction loan in the near future? I would like to avoid obtaining loans from the bank twice. Any thoughts?
Again John, for you it’s a matter of preference. For you a lot would depend on how much you are going to spend on the house you build, and what do you feel you want for a monthly payment. If I were going to build right away or not, could also influence my decision.
When you say you would like to avoid obtaining loans from the bank twice, some of the larger banks will give you a construction loan, which will rollover into a take out loan.
John, in closing, I will give you some tips on dealing with a construction loan.
I have done construction loans.
What you are attempting to do is not as complicated as it seems.You will need the following.
(1) LAND: Either free and clear, or 50% paid down for a land draw.
(Note) If you wanted, you could buy a lot with NO money down, have the seller subordinate their loan to a construction loan. I know that you already have your lot Chuck; I just wanted to mention that for the benefit of others who might be reading my post.
(2) PLANS: These plans have to be approved by the city your building in.
(3) PERMITS: As you know, sometimes the City can require you to build either conforming structures or off sites, that the City wants. The will also have building standard for your area.
(4) COST: The Bank will require a COST BREAKDOWN of all of your expenses. They will want to see a cash flow chart to pay you on a VOUCHER system. As each phase is down and signed off by city inspectors, the contractor will be paid for that phase. (Note) interesting enough, the bank will take your cost break down and analyze it with their computers. If the cost is more, that will concern them, and they will cut it back. If it’s less, that will also concern them because they will think you short changed yourself in building this project. So In essence, the bank can be instrumental in verifying your cost. However, don’t ever count on anyone but yourself. Do your own, do diligence. (Note) the bank will require at least 10% liquidity on you the borrower.
(5) CONTRACTOR: If you are a Contractor, the bank will want to see your resume and you contractors license. If you are not a Contractor, then the bank will want to have a resume on your contractor as well as a copy of his license, and financial statement.
There are other considerations, but this is enough to get you thinking in the right direction. If everything is done right, you should be in the deal about 70% to 75% LTV on a NEW property. In fact I have seen better depending on area, and size of the deal.
John, I hope this post has been of some help, and I want to wish you much success in your new venture.