Convert Owner Financing to Permanent Mortgage Funding

[Chris Maeder]

I have $200k cash for a $650k project to purchase land for $200k and build a $450k vacation home. The land I am considering is $200k and owned by a private association. I would like to request seller financing/deferred payment for the land which has been vacant and on the market for over a year. I would offer $40k down payment and pay the balance of $160k to the association when construction is complete and I obtain a permanent loan. The association will have assurance that the land is sold and they will receive 1% annual assessment going forward. This structure would allow me to conserve $160k cash for the construction phase and borrow only $290k rather than the full cost of construction. 

Would I be able to obtain a construction loan for $290k without owning land outright?

I have never used seller financing but think this is an ideal situation to make a request and welcome any suggestions or feedback! 

[Eric Veronica]

There are always exceptions however I find it very unlikely that a lender will extend a construction loan on land that the borrower does not own.  Even if you were able to find a lender willing to do this I am not sure it would be in your best interest. You may be able to transfer the land and ask the seller to carry a 2nd lien position on the property, but the land would still transfer into your name at closing.  By closing, I am referring to the up front closing which occurs before a shovel goes into the ground. 

Unless there is more to the story, it seems like there is a much simpler solution.  Instead of trying to mess around with seller financing why dont you just put less money down and close the lot and construction loan simultaneously?  If you, you have a contract to purchase land for 200k and a contact to build a home for 450k then you have a total acquisition cost of $650,000.  We can close a one time close vacation construction home with as little as 10% down.   With $65,000 down you can buy the land and fund the entire build.  

Problem solved, right?