Is value of land considered as 'down payment' toward construction loan?

**RogerC** · 12-24-2008, 01:18 PM

I own a parcel of land that is valued at $200,000. It is payed for. If I want a construction loan of $600,000 to build a new house on it, is the $200,000 value of the land considered as a 33% down payment toward the loan? If so, do I need to qualify for a $400,000 loan or for the full $600,000?
Would the monthly payment amount be calculated from the $600,000 figure?

**Codythebest** · 12-24-2008, 02:08 PM

Yes, if it's free and clear. I did it in the past.
I was building TH. And the banker gave me a loan based on the quote from a builder. The land is collateral. If you need $400K to build, he will open a $400K loan and he will give you a part of it, let's say, $100K for fundation for instance. He will send an appraisal to see if the fundation is there and if you need another $100K for another part of the building. You'll pay the interest of what's out of the loan, not for all of it.
I had soem of my TH under contract (pre-construction) and I could close when the building was finish and all permits in place and pay off that loan...

**RogerC** · 12-24-2008, 02:15 PM

Thanks Codythebest. That's how I thought it would work. One question... what is the 'TH' you mentioned?

**Codythebest** · 12-25-2008, 06:07 AM

TH for TownHouses. I was building townhouses on that lot...

**rickiing** · 12-25-2008, 06:31 PM

Roger, I agree with Codythebest. I have had clients who did the same thing with their land. In fact, a young man who is doing just that here in Missouri now. Using his 21 acres as his down. Good luck to you.