Author Topic: Unimproved Land and Equity from Improvements  (Read 4726 times)

0 Members and 1 Guest are viewing this topic.

Offline ambrose

  • Newbie
  • Posts: 3
  • Welcome to the CP-Forum
Unimproved Land and Equity from Improvements
« on: March 12, 2013, 07:46:28 AM »
New member, quite an active forum here!

I'm looking for information on equity increases from lot improvements.

We are looking at buying land that has electric "nearby" and needs well/septic, permits, survey, etc.  Completely unimproved, unincorporated 35 acre lots.

My lender is saying 20% down minimum, which for these lots is 30K or so.  We are budgeting another 15K for improvements.  At this point we have a 20/80 LTV ratio on the lot, and we will have to go get the construction loan after improvements are made.

I'm wondering if we can reappraise the lot with improvements, and if this will increase the value and therefore increase our Equity, stretching our dollar further?


Can anyone reply with similar experiences, final results or advice?

An alternative is to get a combined lot/construction loan, which may only require 10% down, but that forces us to meet a tighter schedule and potentially use a builder, which we are trying to avoid.

Input is much appreciated!


Thanks for any advice!

Offline mgramann

  • Senior Member
  • ****
  • Posts: 220
Re: Unimproved Land and Equity from Improvements
« Reply #1 on: March 12, 2013, 08:02:26 AM »
So much depends on the bank and their policies.  I'll explain our situation.  Our property was undeveloped, so the cost to "develop" was factored into the construction costs.  Specs for what we wanted to build were submitted to the bank, along with costs.  An "AS WILL BE" appraisal was ordered, and since the cost amount(with a 10% contigency) was equal to the as will be appraisal, they were willing to give a construction loan.  20% equity was required, including the value of the land.  We had just purchased the land, so we didn't have that equity yet, but any equity could have been applied towards that down payment.  Had the land been paid for, we would not have even needed a down payment.

Offline ambrose

  • Newbie
  • Posts: 3
  • Welcome to the CP-Forum
Re: Unimproved Land and Equity from Improvements
« Reply #2 on: March 13, 2013, 04:28:29 AM »
Thank you for your response.

It does appear that the single close, all-in-one, type loans are the most convenient, but the requirements make it a bit tricky in terms of owner/builders.

Still looking for more responses or real world experiences!

Offline rick91351

  • Journeyman
  • *****
  • Posts: 3,091
  • 5000' in Idaho
Re: Unimproved Land and Equity from Improvements
« Reply #3 on: March 13, 2013, 06:26:22 AM »
What I / we have found a single owner builder construction loan is not very do able.  They are more willing to do a personal loan on the construction.  When finished there is no  promises or guaranteed paper that they will convert this to a mortgage loan.  Nor will they lock in a interest rate six months to a year from now.

Look to have to split out a couple acres - that will be what you build on.  The rest of land the bank looks at as a bad deal on the build.  That is our experience so far and what we find so far.   But varies bank to bank but that was the one common thing - no larger than two acres.  Look for a small home town bank that is willing to work with you.  Chase or Wells Fargo or CITI really do not seem to want to do anything unless it fits their model.  Small home town banks seem more willing to listen. 

I will PM you with what we have went through in the last six months........   
Proverbs 24:3-5 Through wisdom is an house builded; an by understanding it is established.  4 And by knowledge shall the chambers be filled with all precious and pleasant riches.  5 A wise man is strong; yea, a man of knowledge increaseth strength.

Offline mgramann

  • Senior Member
  • ****
  • Posts: 220
Re: Unimproved Land and Equity from Improvements
« Reply #4 on: March 13, 2013, 06:34:26 AM »
My bank had no issues with the owner/builder scenario.  Outside of the 20% down payment, and disbursed funds had to be for materials ordered or labor that had already been complete.  All draws go through a title company, who verifies that work is complete or materials are on site or ordered from a reputable company.

Offline kbaum

  • Apprentice
  • *
  • Posts: 15
  • Welcome to the CP-Forum
Re: Unimproved Land and Equity from Improvements
« Reply #5 on: March 13, 2013, 07:07:41 AM »
This is my first posting. Hope I get it to work.  We just finished the sceniero you mentioned.  We bought 35 acres 2 years ago, ran horses and cattle on it and decided we save enough money to build or move a house on.  Went through 4 banks before 1 will work with us.  We had to survey 5 acres off as the home site because the house will be located on those 5 acres (incase we got forclosed) we will still have 30 acres.  Long story short we used an construction loan to move a house on a permanent foundation, when we finished the house (moved in) , it was survyed and the loan was moved to permanent financing, that required 20% down payment.

7 months later and many grey hairs dealing with banks, we love our place. ;D

Offline rick91351

  • Journeyman
  • *****
  • Posts: 3,091
  • 5000' in Idaho
Re: Unimproved Land and Equity from Improvements
« Reply #6 on: March 13, 2013, 04:08:22 PM »
My bank had no issues with the owner/builder scenario.  Outside of the 20% down payment, and disbursed funds had to be for materials ordered or labor that had already been complete.  All draws go through a title company, who verifies that work is complete or materials are on site or ordered from a reputable company.
This is my first posting. Hope I get it to work.  We just finished the sceniero you mentioned.  We bought 35 acres 2 years ago, ran horses and cattle on it and decided we save enough money to build or move a house on.  Went through 4 banks before 1 will work with us.  We had to survey 5 acres off as the home site because the house will be located on those 5 acres (incase we got forclosed) we will still have 30 acres.  Long story short we used an construction loan to move a house on a permanent foundation, when we finished the house (moved in) , it was survyed and the loan was moved to permanent financing, that required 20% down payment.

7 months later and many grey hairs dealing with banks, we love our place. ;D

You guys are so lucky.  We have hit every bank around.  An old friend of ours owns a fairly large mortgage company here in Boise.  I dropped in there today to plead my case again.  He says there is one bank in the valley that might handle it in the Boise Valley.  We have not tried them.  I will call on them tomorrow.  Again it is one time loan not a bridge loan which most institutions here also have dropped out of the inventory of types of loans.

And we have over half the build covered. 

 :D

       

Proverbs 24:3-5 Through wisdom is an house builded; an by understanding it is established.  4 And by knowledge shall the chambers be filled with all precious and pleasant riches.  5 A wise man is strong; yea, a man of knowledge increaseth strength.

Offline highlandva

  • Junior Member
  • **
  • Posts: 58
Re: Unimproved Land and Equity from Improvements
« Reply #7 on: March 13, 2013, 04:57:43 PM »
Ambrose,
I am not sure i understand what you are asking, when you mention budgeting $15k for improvements (electric, septic)' is this your cash in or are you trying to borrow it?  I am a commercial banker with a small rural community bank in VA that has been around for 105 years.  I will repeat, you MUST see a small local bank.  Are you looking to borrow funds to build too?  The rule of thumb is 20% in on the land and construction cost and if you are trying to do this at the purchase of the land it can be a hefty and unpleasant thought.  The only other option is to get the land and pay for a few years and put a camper on it so you can enjoy.  Pay it down a little and then go in for a construction loan.  There are 2 different types of final mortgages, in house and secondary market.  Secondary market are what most people think of when they buy their primary residence, 30 year fixed rates, taxes and insurances included in payment.  Your project will most likely not fit into this product, they are very strict in rules and regs.  You will probably be looking at some in house type mortgage with the bank that does the construction loan.   An appraisal will be ordered for an "as to be completed" value, so if you are your own contractor and putting in the sweat equity, it is possible that you could have the correct LTV ratios.  I wish you luck in your financing and building.

Offline ambrose

  • Newbie
  • Posts: 3
  • Welcome to the CP-Forum
Re: Unimproved Land and Equity from Improvements
« Reply #8 on: March 14, 2013, 04:26:18 AM »
Great advice everyone.  Still always looking for more!

Offline kbaum

  • Apprentice
  • *
  • Posts: 15
  • Welcome to the CP-Forum
Re: Unimproved Land and Equity from Improvements
« Reply #9 on: March 14, 2013, 08:31:26 AM »
I should make my post a little clearer.  It took 7 months from start digging of the basement to signing the papers at the bank to put house loan on secondary market.  But it was 1.5 years working with banks.  My wife and I have outstanding credit, but we didn't have enough collateral or savings to make up the 20% down the bank required.  That why it took 4 banks to work with us. 

Offline rick91351

  • Journeyman
  • *****
  • Posts: 3,091
  • 5000' in Idaho
Re: Unimproved Land and Equity from Improvements
« Reply #10 on: March 14, 2013, 09:01:28 AM »
Well I sat down with the last bank that we were told will still do owner builder.  Had great marks on our bids.  They love the other items we have done the well, the septic, the road and splitting off the two acres.  They even loved the fact were are retired and can put huge time in to this project.    They love the fact that we are about 50 - 50 covered.  They like the style and design..... engineering and all included.  They did not like the mill work I have planed in that they doubt we can do it in the five months they require to completion.  I had to agree with that but there is a couple ways around that.  Then it came down to do - do owner builder loans but.....  this time we are out of their zone or territory.   [waiting]  We found out we are outside their lending area when they closed their branch in Mountain Home, Idaho.   [frus]

So we are giving up with the owner builder loan and I have put a couple calls out to the evil world of contractors.  Sorry Don_P just kidding.  Actually I do have friends that are contractor or I did until they read this.......     [shocked] 
Proverbs 24:3-5 Through wisdom is an house builded; an by understanding it is established.  4 And by knowledge shall the chambers be filled with all precious and pleasant riches.  5 A wise man is strong; yea, a man of knowledge increaseth strength.

Offline mgramann

  • Senior Member
  • ****
  • Posts: 220
Re: Unimproved Land and Equity from Improvements
« Reply #11 on: March 14, 2013, 09:31:05 AM »
Have you looked into any credit unions?  I know we are working with a Farm Credit Union, and are very happy.

Also, I wonder if it would be possible to work with a contractor who will take on the shell, and allow you to help and finish the inside.  Do any of the banks allow you to be your own "general" contractor?  Changing some terminology may allow you to find some middle ground.

Offline rick91351

  • Journeyman
  • *****
  • Posts: 3,091
  • 5000' in Idaho
Re: Unimproved Land and Equity from Improvements
« Reply #12 on: March 14, 2013, 10:12:22 AM »
Actually I am looking forward to getting this out of our hair.  Most of the General Contractors I have talked to in the past are very willing to let me have possession of areas like cabinets and our own mill work, flooring and tile work.  Most are more than willing to allow for sweat equity.  We really do not want to have to live in this fifthwheel any longer than we already or need to........That is the main reason I / we / Ellen is throwing in the towel......  WE GIVE UP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!   
Proverbs 24:3-5 Through wisdom is an house builded; an by understanding it is established.  4 And by knowledge shall the chambers be filled with all precious and pleasant riches.  5 A wise man is strong; yea, a man of knowledge increaseth strength.

 

Templates: 5: index (default), Ads (default), Portal (default), Display (default), GenericControls (default).
Sub templates: 12: init, html_above, adsheaders_above, body_above, adsindex_above, portal_above, main, portal_below, adsindex_below, body_below, adsheaders_below, html_below.
Language files: 3: SPortal.english (default), index+Modifications.english (default), Ads.english (default).
Style sheets: 1: portal (default).
Files included: 37 - 1132KB. (show)
Cache hits: 11: 0.00163s for 40,700 bytes (show)
Queries used: 29.

[Show Queries]