Most of us that have ever bought a home did it in one of two ways. We either go into a new home development and walk through the models and purchase one of these new homes. Or we buy a resale home that is on the market from another homeowner. But have you ever driven by a golf course or the side of some remote hill that says lots available? Have you ever seen lots cut into the side of a mountain with that single lone house being built? Wonder what it takes to do this? I will give you some highlights to this process with some approximations of the numbers that make this work.
Picking the Lot – Just like shopping for a home, shopping for a lot takes some patience as well. This is still a step that I would recommend using a valued real estate agent to help you navigate. You may see lots around town with reasonably priced lots but what about the lot with the city view of Las Vegas? These lots are priced between $500,000 and $3,000,000 just for the dirt lot. So what does it take financially to get a loan on that? Buying dirt usually requires a higher down payment because there is not as much recourse for the lender as there is with the home. The number is usually around 40% down for the lot. So if you find the lot you want for $1,000,0000 then you will have to bring approximately $400,000 to the table to purchase the lot.
Picking the home – Now that you have a clean slate with the lot you have chosen now you have to figure out how to build on it. Generally I would recommend getting plans from several builders, to make sure you are getting what you want. In order to get a loan on a new construction, the lender will usually ask for the builder’s financials to make sure that they know what they are doing and are reliable enough to get the job done. The lender does not want to get stuck with a construction project that is not complete and therefore the buyer is in a tough position. Once the buyer’s financials, home plans, and the budget are approved by the lender, then the bank will process the loan so construction can start. There will be construction financing in place that you will be paying during the time of construction, as funds are withdrawn to complete the project.
Permanent Financing – Once the project is completed, the lender will then have the home appraised and determine the total project cost, which will then be turned into permanent financing. This means that you will have to determine what type of loan you will want on the home going forward. At this point you will have already been approved, so it is more a matter of getting and signing loan documentation, so that the home can be recorded and you are able to move in.
Construction to permanent financing is a much more detailed process than just going and buying your standard resale home. This is a very generic roadmap to what this process looks like. Every lender will have their own tweaks to this process and finding a good lender has never been as crucial. If you are in the position to be able to make this giant step, then it is in your best interest to really do your research and find the right real estate agent, right lot, right builder and right lender to help you accomplish your dream.
Please leave a comment or contact me with questions.