Financing Land Purchase and Construction

[Ketra King]

Hi all. How are investors funding the purchase of land to build on?? I’ve read that lenders typically don’t lend on land due to the risks. Are they really using their own cash?? Also, how are they keeping the land purchase from impacting qualifying for construction loans??

[Tyler Warrick]

Hey @Ketra King, great question! 

There are multiple strategies. I'll do my best to detail them out briefly.

Ground up construction: there are HML/PML who will fund both the land and ground up construction all in one. These are great if you have experience, but can be a headache if you don't (some lenders won't even consider a borrower who doesn't have experience). You'll need to work with a General Contractor (GC) to get all figures dialed in before you get approved for the loan.

Land Loans: These are definitely doable, however the terms are not the greatest. Typically you need 30% down, expect a minimum of 3 points, loan amount greater than $100k and the term is typically amortized over 20 years.

One Time Close Construction Loans: These are becoming more popular, but can absolutely be a pain in the butt. This is a Conventional Loan, and it's where the lender will finance the land and construction all in one, however you are avoiding HML/PML's. This means the rates are better, but again the process can be a headache.

Each loans has it's pros/cons, so it's best to know what your goals are to know which route you should take.