Let’s combine the estimated cost to build with the Creative Financing options I have presented, put it through an amortization calculator and see how much it would cost you per month to purchase the land, build your home, then get a permanent loan on your newly built home.
I have researched construction loans, and you either do a construction to permanent loan and they charge you interest only on just the amount of the loan outstanding at any given time, then convert your construction loan to a 30 year fixed, or whatever option you chose for your permanent financing. Or you can get just a construction loan for interest only and the full amount is due after completion, but you must shop for a permanent loan before the construction loan is due, and the project is near completion with an approved appraisal.
One advantage you have purchasing this land and building your own home is, you can sell you home first then either put up a shed structure, a tent, or live in a pop up travel trailer for the three months or so it will require to build. You could even live in a yurt from Blue Ridge Yurts and convert it latter to an office, or in-law quarters. There are many options.
According to my research it’s best to at least contact your financing company before you buy your land, purchase your plans, and contact any contractors. I will post a few links to construction loan articles, but according to them, the financing company will work with your contractor from the start to make sure everyone is on the same page before construction is begun.
Most construction loans consist of three draws, the first of which is paid upon approval of all your plans, specifications, builder contracts and your fixed costs, which is the estimated costs with a contract by the sub-contractors or general contractor to do the work for that amount. If you act as your own general contractor you would get the estimates yourself, get contracts for the work from each sub, then make sure you get all the lien waivers signed and notarized as the job progresses, with your final lien waivers upon completion of their portion of the work, being sure to hold back 10% as a retainage for at least 30-60 days in case they need to be called back.
If your land is not already paid for, free and clear, the first drew will pay for the balance of the loan on the land, as you do not want a lien on the land after you have improved it 200%. (Nor do they!) That is the time I will discount the principal on the loan, within the first five years. Anywhere from $4,000 in the first year to $6,000 at the end of five years. After five years, we can talk again.
Okay, you bought the land, put $20,000 down, and are paying $529.83 a month, and have had it for five months while setting up your camp, and either contracting with a general contractor, or gathering estimates from all the sub-contractors required to build your home, and have signed contracts in your hand, and they come to roughly the estimate of $190,000 which I posted. You have been approved for a $250,000 construction loan. Your first draw would probably be close to $175,000 to pay for the land, permits, insurance, plans and specs, and about $65,000 or so for excavation, foundation, framing, roofing, wiring, and rough in plumbing.
This construction will probably account for two of the three to four months it would take to construct your home, so let’s figure 8% on $175,000 your first draw, which would be $1,167 per month for the first two months. (Don’t forget you no longer have to pay the $529.83.)
With your second draw being about $50,000 to pay for everything except the final finishes, your payment would go to $1,500 per month, for about one month then the final draw and payment would be $1,667 per month till you get your permanent financing.
In case you have not noticed the $250,000 loan would leave you short by about $3,829, which I would be willing to sign a personal loan with an interest rate equal to your permanent loan (cause I would rather you wrap this into your permanent financing), for five years, with payment beginning after you get permanent financing.
Now on to your permanent financing. What will your new home appraise for now? There is a 1,100 SF home on 23 acres selling for $280,000, so I expect your home, 1,500 SF on 25 acres would increase the value by at least 10% since your home is 40% larger and your acreage 10% bigger for a whopping $308,000. So if you take out a permanent loan for $270,000 to recoup your $20,000 down payment, at 30 years and 6.5% your monthly payment will be $1,706.58. Or just finance the construction loan and with the same terms the monthly payment will be $1,580.17. Of course if you can get better terms the cost savings would be substantial.
I am not a professional and all my numbers are estimates, but they are best guesses based on everything I have studied so far. Please consult a financial or real estate expert before venturing into any investment so large as this.
Here are some links of interest I encountered on my Google quest:
Amortization Schedule: Download this then save it separately, as it is read only unless saved with a different name.
Amortization Schedule: Use this right on line for a quick determination.
Bankrate.com: There is a plethora of information regarding loans of all sorts here.
How Construction Loans Work: Informative but links to other information.
Construction Loans FAQ: This is information specific to this company but applies to most construction loans.
Construction Loans, how they work: This is an entire Google page on Construction Loans.
If you did not catch the link I gave on the estimated cost to construct a home in Charlotte County VA this one is great! P.S. The zip code for this land is 23962 it shows Farmington, but that is just a nearby town.
Building-cost.net: In about 5 minutes you can develop a home construction or replacement cost that considers all the important variables: materials used, design features, quality, size, shape, heating, cooling and geographic area. Your printed estimate shows detailed labor and material costs for each of 34 construction cost categories. Plus, it’s FREE!
And if you want to finance land only for up to 20 years go here:
Dumont Land Finance Corporation: 10% down, but they only work in Colorado, Georgia, Missouri, New Mexico, Oklahoma, Texas and Virginia.
I hope this liturgy has been helpful to you in making your decision.