How to Secure Your Home Site
With a Lot Loan

You will need to get a lot loan from your bank if you have to buy the land (piece of property), and can't afford to pay cash. There are advantages and disadvantages to getting this first, instead of a construction loan. 

Advantages of getting a lot loan: 

1. You can go ahead and buy your favorite home site, so it won't get sold to someone else.
2. You don't have to rush with the design of your house.
3. You don't have to rush into the construction. 

Disadvantages: 

1. You pay origination fees, appraisal fees, other fees, and closing costs twice - for this loan and the construction loan.
2. You start paying interest (usually monthly) on property that is sitting idle. 

The bank will take all your borrowing for the project into consideration, as well as your financial situation and credit history. Later on, this loan will be absorbed into the construction loan and finally a home mortgage. You may be able to borrow up to 100% of the lot cost. Verify this with your financial institution. 

The Property Will Become Collateral 

The property will be collateral (security) for the loan. If you don't make the interest payments, the bank can foreclose and take the property. In order to have distinct property for your house - if the home site is part of a larger piece of land, such as on family property, the bank may require you to "title off" a piece of the property. That way the home will be built on its own separately platted piece of land. This allows you to have title to the house and the land it occupies, which also will be the collateral for a mortgage. 

It's exciting to get moving on your future home. However, in these uncertain and changing economic times, bank policies and federal rules for have changed dramatically. Don't take anything for granted - sit down with the loan officer before you commit to a piece of property, and lay out your entire game plan. 


Your next financing step will be to settle on the construction loan. Click on the link below for practical advice and great information! 

Click Here for Information On Construction Loans 

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