Most of the time everyone thinks they have to purchase land and then build later, but this is not the case. Many do not want to have to wait for a later construction date. Even though lenders are not comfortable with combining land and construction loans, it can be done.
First Step – Find a Lender
“Many commercial lenders/mortgage companies do not feel comfortable financing land and/or construction in rural areas,” says Taylor Hart, manager of the Auburn/Opelika Branch of First South Farm Credit. “If a commercial bank will do construction loans in rural areas they often will require the owner to survey out a smaller parcel for the home site which leads to added costs and time for survey and recording at the courthouse. This ‘subdividing’ can also cause the project further delays if the county requires it to go before the subdivision committee.”
The Loan Process for Approval
With a company like First South, a potential builder/land purchaser will need to follow their loan approval process. The process will protect both the lender and the borrower when dealing with a combined loan for land to build.
“We would need plans, specifications, and an executed contract from a licensed builder to be able to have an appraiser arrive at an appropriate appraised value. We can typically lend up to 85% of the appraised value of the total package of land and home,” Hart explained..
“Barndominiums -some sort of combination of living quarters with a barn look- have become really popular lately and most commercial lenders are not comfortable with this type of construction. As a rural lender First South can provide construction loans on these as well. Most of our construction type loans are dealing with either homes, barns, or poultry houses (which would be commercial, and have their own different set of criteria),” he said.
How the Combined Loan Is Set Up
Combined Loans that are done by First South follow a different pattern. There are many options to choose from on setting up land for build loans.
“We are able to do construction loans for up to 12 months, interest only if that is what the member wants. We then do a permanent longer term loan. We also have a program we offer that is done with one closing still consisting of a construction period followed up with the longer term mortgage. This is popular as rates are rising due to the fact we can get the rate and term locked down now instead of the end of construction,” Hart pointed out. “This process takes the risk of rising interest rates during construction out of the equation. First South likes to sit down with our members and tailor the loan to what fits where they are in life and what is comfortable for them. My suggestion is to call the First South office in your area to discuss options. We can lend with terms up to 30 years”.
If you feel a combined loan is a fit for you, then contact First South today. “First South is a co-op owned by our borrowers. As such, we pay a patronage refund back to our borrower/members once a year. Does your mortgage company pay you money back,” he asked.