Loans for the Adventurous:  Land and Construction

Land

Land loan and construction loans and FHA 203(k) loans are available for those hearty enough to survive the costs and delays of permitting and skillful enough to supervise building.  Land loans enable speculation on land values or purchase with the expectation of construction; they free up capital spent on land which rarely pays rent to compensate for interest paid.

Construction

Construction loans are issued at relatively high interest for land, air and the promise to build.  They can be replaced with lower interest conventional loans when construction completes.  If rules are followed, FHA 203(k) loans pay simultaneously for purchase and remodeling of a primary home done within six months. Down payments can be as low as 3.5% and credit need not be stellar.  Contractors or owner-builders can qualify and the construction loan can be combined with the land loan if you have qualified building plans with cost breakdowns.

When a house is completed, it can be rented or sold; it is now worthy collateral so lower cost longer term loans can be obtained.  In remodeling or new construction, you may qualify for construction to perm loans that require only one closing.