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Speak to me of financing a house/barn on land already owned....

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  • Speak to me of financing a house/barn on land already owned....

    So hubby and I *may* be gifted a beautiful piece of property by his parents. There is a house site and valid perc, but no home or any other improvements on the property.
    Does anyone have any insight into current practices regarding getting financing to build a home and possibly a barn on a piece of property that you already own outright? I know getting financing for the land/house combo can be difficult, but in my preliminary life-planning mode, I'm wondering what sort of challenges we may face should this come to pass.
    Thanks in advance!

  • #2
    home equity loans would be my first go-to. But you need to have enough equity in the property for them to loan you the $. Which may be doable in your case if you're gifted the property.


    • #3
      You will want to look into a construction loan. I'm in the process of building a house right now -- I actually did finance house/land together, it wasn't really an issue once I hooked up with a local experienced lender. Since you own the land outright, the value of the land is the downpayment on the construction loan. You also do not have to make payments during construction, but keep in mind interest does accrue, so faster is better as you will have to pay whatever that interest is when you move in.

      Also, my construction loan will immediately roll over into a permanent mortgage once construction is complete. Construction loans generally have a higher interest rate (I think mine will be something like 5.25, so not horrible, then will drop to around 3.5 or something) which then changes as it rolls over. You will also need to find out if you or the builder will carry risk insurance during construction, investigate who will file the building permits (usually builder) and who will build the infrastructure (septic, well, sewer, whatever).

      I had 3 choices for financing, my own state employees' credit union, a local bank, and Farm Credit (well, probably a larger national bank as well but I did not want that). I ended up choosing the local bank as Farm Credit wanted to significantly larger downpayment (although owning land probably makes that a moot point) and my credit union, while awesome, has higher interest rates.

      So....there's some random info.
      Life doesn't have perfect footing.

      Bloggily entertain yourself with our adventures (and disasters):
      We Are Flying Solo


      • #4
        My husband and I bought our land outright and then, when we were ready to build, we got a home equity loan (HEL) based on the value of the land. In order for this to work for you, you will have to get building estimates on your house construction to know whether you have enough value in the land to cover the amount of construction money you will need.

        If you can cover your build this way it gives you more flexibility. Check in your area to be sure the details are the same, but in our case a construction loan would have been controlled by the bank - that is, they have to inspect the house at certain stages in order to release money for you to use. If you have an HEL you can use the money when you need to without the bank controlling its release. And like a regular mortgage, any interest paid on a home equity loan is deductible on your taxes. Plus you are only paying interest on the amount of the loan you have actually used (as you go along), rather than on the total amount you were approved for. And you could use money from the home equity loan to pay for horse-related building (sheds, fences, etc.) or other things, too.

        Of course this works best if you have high enough land value to support a decent-sized home equity loan, coupled with relatively modest home construction needs!
        It's just grass and water till it hits the ground.


        • #5
          Mine worked as Wildlifer described.


          • #6
            The biggest money saver in building is no changes. Once the plan is finalized, and building starts you change nothing. Change orders ruin the timeline for the builder, the subcontractors, and cost time and money.
            You can't fix stupid-Ron White


            • #7
              Just make sure you will not need an appraisal at the end. We cannot get our 400K+ barn valued at much over 25K...


              • #8
                Originally posted by JanM View Post
                The biggest money saver in building is no changes. Once the plan is finalized, and building starts you change nothing. Change orders ruin the timeline for the builder, the subcontractors, and cost time and money.
                Well yes, but......

                Change orders are not always the home builder deciding they want the wall moved three feet that way.

                Change orders sometimes are necessary because of unforeseen conditions.


                • #9
                  Yes Trub, but the people I know that built or totally remodeled houses had a pretty good handle on costs, but knew there could be over-runs because of unforeseen circumstances. However, one family changed the back wall of the house plan, enlarged a couple of closets, moved around the bathroom fixtures, added a feature or two to the garage, had to change the roofline to accommodate another change, and so on. There were minor construction glitches, but the huge cost over runs they had were their own fault. They really should have known better (they were in the remodeling business on a much smaller scale), and they did save on things like buying appliances from the cheaper retailers, but they still kept changing their minds, and it severely complicated things along the way. Even right after their house was finished they were saying what they would change if they could. I think some people (like my friends) would be better off buying existing houses, so they know exactly what they're getting. Indecisive people are not well suited to building or remodeling. However, I think with good planning, being realistic about budget, figuring out what you like in a house, and knowing exactly what you can afford, that you can come pretty close to your budget.

                  Going over budget is easy to do, and while remodeling after a fire I did the same thing-I call it the 'might as well as' syndrome. You're doing one fix, and because of that, you decide something is a good idea, and it affects a lot of things. I think people thought it was funny that I kept saying 'it's only money' or 'I might as well do this, because it's cheaper in the long run' but it did make sense.
                  You can't fix stupid-Ron White