using land as down payment for construction loan

– Cash Down Payments. With construction loans, banks want the borrower to have some "skin in the game" in the form of a down payment. If you are borrowing on the land as well as the construction, you will typically need to make a substantial down payment of 20% to 30% of the completed value of the land and building. Construction loans.

As stated in my original post, does this simply mean that if my land is valuable enough I simply use it as collateral and no longer require a down payment, or does this mean that an equity loan is taken out on the land and said money is used as a down payment, thus meaning I’d have the equity loan to pay on top of the mortgage?

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Since a construction loan is a nonstandard loan, it is generally set up as an interest only loan and payments are required during the construction. Also, many lenders require that a borrower provide a down payment of 5 to 10 percent. If the borrower owns land, the equity may be used to secure the construction loan in lieu of a down payment.

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Further, you may face higher interest rates by using land as the down payment on any loan rather than placing a cash down payment. You can use land as mortgage collateral.. since you already own the land, only the cost of construction must be provided through a loan. Video of the Day. I realize with FHA it could only be 3% down payment, our.

We are in the process of obtaining a loan for construction and have come across the question of is it better to by the land up front and have it free and clear, or include it in the loan and make a cash down payment. Megan Hi Megan, Your loan officer should be able to tell you what is required as your down payment. Often, using land that is.

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