20 percent down on construction loan

Bridget HelmFebruary 8, 2013

Do you HAVE to put 20 percent down on construction loan at the closing? We haven't put our house up for sale yet and we have a lot of equity in it. I thought we could put 10 percent on the construction loan then more once our house was sold and the home was built.

How does this all work? We will be calling lenders Monday, but I'm curious now. We put in a purchase agreement on a lot and were told that we should get a construction loan not a loan for the lot only. This way we can avoid two closings.

Please she'd some light on this. Thanks!!

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I'm curious about this too as we plan on using equity from our current home towards the construction loan. I know there are bridge loans you can take out and pay back once the home sells.

    Bookmark   February 9, 2013 at 12:06AM
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Everyone I talked to required 20% down. We used our land though- which put us at 40% down. It will also depend on the type of loan you use: one close or two close.

    Bookmark   February 9, 2013 at 12:21AM
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Bridget Helm

I suppose we could sell our house and rent while building so that we can put the 20 percent down. But gosh, I really want to stay put while building.

I wish I would have known this sooner. I just assumed that the 20 percent was due at the closing once the house was complete. I paid 12000 in tuition for the kids' 2013-14 school year last week rather than signing up for the loan program. Had I known, I would gone have gone with the tuition loan program.

    Bookmark   February 9, 2013 at 12:53AM
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By now, it's probably too late, but the terms of the mortgage depend on the lender's loan policy and one's credit rating. The duration of construction loans is typically 12 months. Construction of a custom home usually takes most of that period. If one isn't going to immediately start construction upon purchase of land, then rolling everything into a single construction loan may not be advisable.

The idea of selling one's existing home depends entirely on how long comparables tend to be on the market before selling. In many areas, this may be 6 - 12 months!

It's always best to do one's due diligence as early in the project as possible.

Good luck on your project!

    Bookmark   February 9, 2013 at 10:30AM
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I've talked to two banks that said 10% down was available. The house we are planning on building though would probably only be 5 months. Nothing fancy. They said it depends on your credit rating and amount of reserves too.

    Bookmark   February 9, 2013 at 6:36PM
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We just got our loan finalized and our bank offers a 5% down construction loan. I was shocked by that as through the same bank when we bought our lot, we needed 25% down on that 3 years ago. We are in Southeast Wisconsin.

    Bookmark   February 9, 2013 at 10:01PM
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We talked to a couple banks who said they would consider our lot (owned free and clear) as our downpayment if it appraises high enough. I think it had to be 10% of the total estimated loan amount. In our case, the lot is valued at about 15%-20% of the value of our build, so we should be fine.

We also recently started talking to builders who want 10% down too--separate from the equity required by the bank. We were assuming that would need to be cash, but I am wondering if there are cases where the bank pays that down payment as part of the loan? We are saving like crazy, but I would love to just start building already. Has anyone used a loan to pay the builder's deposit?

    Bookmark   February 11, 2013 at 7:50PM
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Supergrrl- there will be things that will come up during your build you may need to pay cash for. So I would not go with a builder who required you to give them all of your available cash at the start of the build. Our builder required earnest money of $1500. That was refunded to us with the first draw from the bank.

    Bookmark   February 11, 2013 at 10:33PM
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We closed on our loan the end of December. We are currently framing now. Construction loans are purely regional.

In Ohio we are able to do as little as 5%-10%-20% down but the 5&10 require PMI. Our bank offered us 10 down with a 10% second mortgage. That got us out of PMI and we are a fixed 30 on the large loan (we also did this to get out of jumbo territory).

Since we did custom things that cost our builder money we ended up putting down 8000 dollars directly to the builder but the bank considered that down payment and subtracted it from the closing costs when we closed. 5000 dollar earnest money and we went ahead and paid for the permiting up front so once we closed we could start right away.

Do you know if the loan you are looking at is a one time close?

    Bookmark   February 12, 2013 at 10:16AM
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Bridget Helm

Ok. Thanks everyone. I see that it is certainly NOT a one size fits all situation. One thing I'm sure about is the builder not requiring anything up front. Everything else we are still trying to figure out. We do have a credit score over 800, so at least we've got that going for us.

Anyhow, my husband will be checking into our options tomorrow. (It's Mardi Gras over here, South Louisiana, so the business world is at a halt)

    Bookmark   February 12, 2013 at 2:57PM
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