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Lot Loan

by Mike Selner

Often the first piece of the puzzle that is building your dream home is finding that perfect lot or parcel of land to build on. While a lot purchase is handled like a typical home purchase, the financing options could differ depending on the scope of the project, timeline, & equity options.

Most lenders will require a 20% down payment on lots. The down payment can come from saved cash or equity in your current property through a home equity line of credit (HELOC) or fixed loan. 

If you have a strong equity position on your current home, utilizing a home equity loan could potentially cover the entire lot purchase, making it a cash transaction and eliminating potential contingencies placed in the offer to purchase. A contingent-free offer will reduce the risk of you losing the property to another buyer in a hot market. This option also allows you to keep your cash while you plan to build.  The land will be free and clear and counted as equity towards the construction product.

Our lot loan program offers a 1-, 3-, or 5-year fixed term. These options should accommodate the timeframe desired to meet your project timeline. The lot loan can be rolled into the construction financing as your plans move forward to start the building process.

Both options will utilize the equity gained on the land towards the final build numbers as construction starts.

If you have your plans and costs figured out with your builder and then find your lot, you can begin the short-term construction financing right from the start. This eliminates the need for a lot loan. The down payment requirements are typically 20% on a construction transaction. This option is not as common but is seen from time to time. Everyone’s situations are unique, so having an in-depth conversation with your lender is a crucial first step in the process of a lot purchase as you set your sights on building your dream home.