Financing Land Purchase and Construction

Private Lending & Conventional Mortgage Advice
2yFollow

Financing Land Purchase and Construction

Ketra King
Atlanta, GA · Member since 2018 · 5 posts · 0 votes

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??

0Reply
44 views

Most Popular Reply

Tyler Warrick
Lender · Chandler, AZ · Member since 2023 · 88 posts · 48 votes
2y

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. 

2Reply
See this reply in the discussion

6 Replies

Jump to latestLatest
  • Tyler Warrick
    Lender · Chandler, AZ · Member since 2023 · 88 posts · 48 votes
    2y

    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. 

    2Reply
  • Andrew Zamboroski
    Lender · Member since 2021 · 495 posts · 130 votes
    2y
    Quote from @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 brought up some excellent points!

    We do have a lot of builders who purchase the land cash. They will then use equity in the land towards their build costs when financing for construction.

    I hope that helps!

    1Reply
  • AJ ExnerPro Member
    Lender · Springfield, MO · Member since 2023 · 652 posts · 314 votes
    2y

    Ketra,

    There is some flexibility with a few lenders that I know of on purchasing the land (up to 75% from what I've seen) as long as the land is shovel ready. You'll find some heavy hesitation on most lenders if it hasn't been planned/permitted because of the delays that those things are prone to have.

    [email protected]417-427-2612
    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y

    for builders in the business and experienced their construction lenders will do a land advance.

    for everyone else you might as well come to the realization your going to need the land paid for.

    save you a lot of time and heartaches searching for that unicorn lender..

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Simmy AhluwaliaPro Member
    Lender · Atlanta, GA · Member since 2015 · 1k+ posts · 200 votes
    2y

    @Ketra King - we're also based in the ATL.  For SPEC loans, lenders will finance both the lot purchase and the vertical construction.  You will have to bring 35-45%-ish of the cost of the lot to the table.  Also, new construction is a different beast than fix/flip experience, so lenders want you to have new construction experience (and/or a builder-partner), simply out of risk on their part.

    0Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y

    Yes ! Can get 50% financing for the land 100% of construction upto 65% arv . What are the scenarios looking like ? Lets connect and discuss 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free