As of October 2016 land is becoming more and more scarce in Pittsboro and the rest of Chatham County. There are plenty of nice houses on small lots and in Pittsboro neighborhoods. There is land for sale with lots ranging from 4 – 20 acres, especially towards Sanford and Siler City, with no home on it. For potential homeowners looking for a nice, newer house on a large acreage tracts, there are simply no options without getting into the 500k+ range. So, many people look into buying land and building a new house on it. This is called a construction to perm loan, aka a construction loan.
Buying vacant land for a new house
In a recent article, we covered why banks do not finance land and alternative financing. However, if you will be building a new home on your property you will likely qualify for a great loan from a ‘normal’ lender. You can finance land if you are building a house on it.
How much land can I finance?
The local State Employee Credit Union wants the home to be around 60% of the total value of the loan. Some lenders want the home to be 80%. I have heard that Farm Credit will allow the home to be 35% of the value.
This means you get get $100,000 in financing with a $35k house and a $65k piece of land.
Some lenders have issues lending to you if you are planning on buying 10 acres or more.
Most lenders will require 5% down. Some want 10%.
Some lenders will offer 1 type of loan, and once the new house is built, you can refinance it into something different with a lower interest rate.
The percentages above are in place so that people don’t buy a $1 million piece of land and put a $5 house on it.
Some lenders require the use of a general contractor. This is, again, so that the project gets completed in a reasonable amount of time. The banks want their money back as quickly as possible. Often when people manage their own projects, they will get stuck on something, like a hardwood floor install, or months.
Please note that in the video the land to home ratio is not consistent with what is above. What banks lend changes often. As of November 2016, the article above is correct.