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Purchasing land.

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Would somebody either in the real estate business or who has experience purchasing land to build a residence on it at a later time care to outline mortgage options and the lending process.

I assume there are different mortgage options based on how long you want to sit on the land before building. I'm mostly interested in the options for sitting on the property for a few years, but I'd like to hear how it differs from purchasing land to build now as well.

What's the normal process?

Is there a more optimal process that is lesser known?

Could it be 2 different mortgages so that you only have to put a % down on the piece of property and not the planned future construction loan?

I had a friend who purchased some land, sat on it a few years. He had a certain loan that just required he pay the interest, which was minimal, until he was ready to build. Once he did build, the first mortgage was rolled into the construction loan mortgage.

This seems optimal.. is this normal? Are there drawbacks to doing it this way?

Lastly, with the economy and foreclosures, more stingy lending, etc.. how does that change things? Would the above scenario be adversely affected ? Is a bigger down payment expected on the land?

Can anyone recommend either good literature or websites on the matter as well?


Edited by Highway6
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  • 2 weeks later...

I'd like to bump this topic to see if it can gain any traction this go-round.

Also, I'll re-pose a question i posted in another thread.

What is the procedure and typical costs associated with obtaining an address for a parcel that has none? HCAD records show it with a 0 address.

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First off, you do not get a mortgage for raw land. You would apply for a land loan. In this economic climate, there are fewer banks willing to loan on raw land. However, local banks have always been the better bet for getting them, as they know the market better. When I bought some lots in Galveston several years back, I got the loan from Frost Bank with no problem. The big national banks would not have been as generous.

If you are going to build immediately, you can get a construction loan that purchases the land and builds the house. Then, a mortgage pays off the construction loan and has long term repayment terms, such as 30 year terms. Usually, the builder will do this, but if you are doing it yourself, you would have to qualify on your own. The bank then pays the bills submitted by the builder. Some of the big banks like Chase will do a construction loan and mortgage together. Once the home passes inspection, you go to closing, where the mortgage replaces the construction loan.

This stuff can get rather complicated. It really depends on who is going to build the house. A quality builder usually has his own financing. Buying the lot first is OK if you qualify for the land loan. If you line up the builder at the same time, they may buy the land for you. Then you just line up the mortgage.

What your friend did is common. One way is not necessarily better than another. It depends more on your time frame and finances. You may wish to consult a mortgage broker about this as well. They are not all sharks. Many can help you line all these different loans up.

Good luck. You'll have many headaches dealing with this stuff, such as the red tag the City just gave me today. :)

Oh, addresses are assigned by the US Postal Service.

No cost for that. I don't know if they do it for vacant lots.

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I worked for Ascension Parish in LA in college, and the Parish government was responsible for doing new addresses. Whenever you put in the documents to indicate there are improvements on the land, a new address was part of that process. It might be different here. They didn't address anything until there were approved plans for improvements (or until someone rolled the trailer up the driveway).

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