My wife and I are not regular investors. We decided three years ago to sell the home we lived in for 18yrs (refinanced a couple of times so not much equity), but enough equity to purchase a condo at a good price. It was our intent to live in the condo for two years and sell at a profit, hopefully making enough to buy bigger and better the next time. Then Covid happened and two years turned into three years before we were able to put it on the market. As soon as we listed it, the condo sold for significantly more than we had anticipated. Not only that, but it sold faster than we anticipated and we suddenly had nowhere to move to. All this happened in April 2021. It is now May 17, 2021 and we are renting whatever we can find for as long as we can find. At the same time, we are looking for our next purchase....
All of that said, and now I get to my real question. I am trying to figure out how it works when you use land as leverage to purchase a house or build a house.
We are seriously considering building a home. (I know, material prices are thru the roof and lead times are long as well).
We are thinking we can pay $160K cash for the Land.
Then, use the land as collateral (Leverage) to get a loan to build the house, which is going to cost $550K to build.
a) Will I still be financing the total $550K? or b) will I be financing $ 390.00 ($550K minus $160K)?
You’ll be financing $550k on a home you hope will be worth way more than $710k. (Assuming you meant it will cost $550k in labor and material when you say “cost to build.”) Otherwise you’re spending time and money to break even. You are barely over the 20% downpayment threshold (if the lender will give you full value credit for your land. I have no idea if they will, ask your local lender.)