This brevity reflects the need for timely completion of construction projects. Short-Term Nature: Construction loans are typically short-term loans with a duration of up to 12 months. Key Characteristics of Construction LoansĬonstruction loans exhibit several distinct characteristics that set them apart from conventional mortgages: This unique structure requires meticulous financial planning and is where a construction loan calculator comes into play as an invaluable resource. Unlike traditional mortgages, where you receive a lump sum upfront, construction loans disburse funds incrementally, often referred to as “draws,” as the construction progresses. Most lenders will require a boundary survey.What Is a Construction Loan? Understanding Construction LoansĪ construction loan is a specialized financial product designed to provide funding for the construction of a new building or the substantial renovation of an existing structure. Also for irregular acreage or land sites it's important to know exactly what's included on your site. Boundaries – Typically you will want to get a stake survey to mark the corners of your lot.

They may be able to show you the future sites for schools and parks as well as projected new highways or garbage dumps.

Future plans – Check with the local planning department for future sites near the land that may affect the future value of your property.

Zoning and land use restrictions – Is the land currently zoned for your intended use for the property? Is the lot big enough for your dream home or is it restricted by the covenants and setback requirements? Is the lot in a homeowners association? If so, how much are the dues and what association restrictions are you subject to?.

If no public sewer and water are available, the cost of a private septic system and well construction will be at your expense.

Utilities and improvements – Are there paved roads, streetlights, a public sewer, water, electricity and natural gas? If these amenities are not already included in the purchase of your proposed building lot, these will be a future cost to develop your site.

Access – The lot will need to have access to public roads or a permanent easement granted to access a public road.

There are many factors one should consider when shopping for a land site. These lots are also financed by home equity or cash out refinances on the borrower's current home. Typically lot loans require 10-20 percent down, with amortization terms up to 20 years. These sites usually have been improved with the addition of sewer and water systems, streets and easy access to other utilities. A lot loan typically consists of one or more building sites for residential construction.

Lot loans are usually available from local lenders and some national lenders. Most will require more money down (up to 50 percent) and charge a much higher interest rate. Lenders consider raw land as the least desirable collateral for all land uses. Unimproved “raw” land is usually the hardest to finance or get with favorable terms. The purpose and current use of the land can dictate the terms of the loan. Land loans come in all shapes and sizes and are unique compared to existing home loans. Factors to Consider When Purchasing Land.

Land loan calculator