Reply to Construction loan financing question - amount of down payment required

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[quote=Anonymous]I am going through this now.  Lots of banks will do construction loans with 20% down.  One, Sandy Spring Bank, will do an 80-10-10 (but you'll need 10% in liquid reserves).

Your existing "lot loan"/"mortgage" of 480K would be wrapped into one loan for 80% of the purchase price of the lot (I am assuming 600K) plus the construction costs of 400K for 800K (80% of 1 Million).  Since you have $120K of equity in the lot you just need another 80K plus closing costs.

Advice, for a lot worth $600K; 400K seems low on construction cost side.  Keep in mind you'll need a sizable budget for demo (if a tear down) and all site work (grading, driveways, etc...) in addition to the house construction cost.  Depending on location you're looking at on average $40K - $60K just in site work.

Now, I ran into one lender, can't remember who (sorry) that will loan you money based on the appraised value of the COMPLETED house.  So if the appraised value is 1.3 million and you only need an $880K loan to pay off the lot loan and build the house that's well over 80% Loan-to-Completed-Value so you'd only need to bring closing costs; unless you roll closing costs into the loan, which should be doable, but generally not the norm.

Most, lenders base the Loan to Value on the purchase price of the land plus the actual construction costs.

Hope that helps!

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