General financing question

[ganderegg1]

I know about the difficulties of financing monolithic domes. I have a more general question. Say somebody wanted to build a conventional house. If they paid cash for the land and the land was 20% the total cost of the project, would the land itself be a sufficient dowm payment? By total cost I mean the cost of land plus construction.

[Necoras]

Generally when you take out a mortgage (for land or construction) the bank wants to see all of your financial holdings. That is your bank accounts, retirement accounts, stock, etc. as well as any property you own. That would include a current house, land, possibly cars, etc. They also want to know about all of your debts. Basically they want to know your net worth.

It's possible that the bank will be willing to accept the land as collateral. In fact, they may demand it (what good is owning a house if you don't own the land it's sitting on?).

You'll need to work out the details of your specific situation with local mortgage lenders.

[Mcfish]

Without going into a huge amount of detail; the value of the land counts as equity. That's assuming the land has no debt. The ratio of loan to value can vary by bank. Most lenders want to see some cash available to cover any surprises if the loaned money runs out before the house is finished. The appraisal determines the total equity; I bought land 4 years ago for 200,000, but the appraisal may indicate it is worth less now. In many locations, with market values down, you can buy a distressed house for less than it costs to build it. So to get a new house built, you may have to put even more money in. Say you paid 50,000 for land, house of 2000 sf cost 250,000. Appraisal shows value of finished house at 280,000. Bank will loan 70% of value = 196,000. To get house built you need to put in 54,000 and still have some more for emergencies at the end. It all depends on the market and the banks policy. Many banks are not making construction loans at all, let alone MD's.