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Minimum ownership period of land for equity?
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Posted by phillipgms (My Page) on Tue, Feb 9, 10 at 13:40
| In preparing to build on my property, I discussed different loan alternatives with my local bank. I was informed that in order to consider my land (owned free and clear)as equity towards the loan, I must own the land for twelve months prior to opening the construction loan. This 12-month requirement is supposedly the result of new legislation pushed by the housing bust.
I would like to begin building at roughly 8 months after ownership, and don't really want to get pushed back much (low rates, responsive contractors, etc.) According to the bank, if I choose to build prior to owning the land for twelve months I could do a short-term, or in-house, loan based on costs and do a permanent mortgage later, based on cost vs. equity with an additional closing cost. My mortgage lender is really pushing me to wait till twelve months.
I live in Mississippi. Anybody dealt with this or any suggestions?
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Follow-Up Postings:
RE: Minimum ownership period of land for equity?
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| I think your lender is actually inaccurate. I have read about new guidelines which require lot/land loans which are rolled into a construction loan to be "seasoned" for a minimum of 12 months. But if you own the land outright, how can a lender put any sort of time penalty on you? What would be the reason? Hope you built your reserves back up a bit, maybe? Are you using your original purchase price as cash equity you are bringing to the table? Perhaps the lender wants to know the land is still valued that high?? A qualified vacant land appraiser should be able to answer this concern. I dunno. It doesn't make sense to me. If there really is such a rule, I would suggest treating it as a guideline, telling this lender 8 months is long enough, then politely asking if he really wants your business. ~Allen |
RE: Minimum ownership period of land for equity?
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| That's interesting. We're carrying our construction loan and our first disbursement (from our funds, 100%) bought the lot. How is that any different, I wonder? I "closed" on the lot the same day as closing on my construction perm loan. As long as the whole package (including land) appraises and you meet the other requirements, I don't understand. Can you shop around? |
RE: Minimum ownership period of land for equity?
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| "We're carrying our construction loan and our first disbursement (from our funds, 100%) bought the lot. How is that any different, I wonder?" It sounds like you have no skin in the deal. If you used borrowed money to purchase the land, you have not put in any of your won money. Disbursement is a lending term for advancing a portion of a loan, not using your own $ to purchase a lot. |
RE: Minimum ownership period of land for equity?
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| To tracey_b: I can shop around, I would just love to deal with the bank I've talked to. Not stuck with them for sure, though. I'd love to hear from others. |
RE: Minimum ownership period of land for equity?
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| Ask them for the name/number of this new legislation. |
RE: Minimum ownership period of land for equity?
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| Do they have a corporate headquarters? If so, it is at least worth a phone call. Have you seen that requirement in writing? Ask for a copy. We have taken a couple of questions to our attorney and found that a lot of what is written is up to interpretation. Good luck and keep us posted. |
RE: Minimum ownership period of land for equity?
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| ...Disbursement is a lending term for advancing a portion of a loan, not using your own $ to purchase a lot.... Sorry; I used the wrong term. The funds came out of our pocket. |
RE: Minimum ownership period of land for equity?
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| I had a banker tell me the exact same thing this week. Said that there are two options if you they were able to carry the mortgage: 1. The land must be deeded in your name for at least 12mos. or. 2. Keep receipts for everything in your build (ticky tack stuff even like fixtures, wall plates, etc.) If you choose the receipt route, as I understand it they then could loan you 80% of price or something like that. Told me the story of a guy who just built and came in for his mortgage, didn't keep good receipts and now had to have the construction lender carry the note (on higher terms) for an additional 6 months. Blamed this rule on the Feds and said more changes for the worse are coming in the next few months. In other words, I think you are on to something and better check before breaking ground. |
RE: Minimum ownership period of land for equity?
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| This appears to be what you are talking about - and applies when you want to use your lot as equity, as you discussed. |
Here is a link that might be useful: Fannie Mae Construction Loan Single Closing Guidelines
RE: Minimum ownership period of land for equity?
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| Athensmomof3: Thank you very much, that's excatly what the bank is talking about. And as my land is inherited, I believe I can get by with less than twelve months. I'll take this to the bank...literally! Thanks again. |
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