How about renaming this topic to "Financing", which would include a discussion of how people finance the design and construction of Not So Big houses?

I'm finding that there are not many lenders who provide home construction loans, and even fewer that provide land loans. So a discussion of what works and what to avoid in this area would be quite helpful.

For example, have most people built a house according to the following process:
(1) pick out a house plan;
(2) find a site to fit the house;
(3) get construction loan for land+house;
(4) get building permit?
Or has anyone built according to this process:
(1) find ideal building site;
(2) take out land loan to purchase site;
(3) design house to fit site;
(4) get local planning/zoning approval;
(5) take out construction loan to build house;
(6) get building permit?

There seems to be a disconnect between the construction loan process and the design process... A typical construction loan will fund the purchase of the land plus the construction of the home. But the typical escrow period for land purchases is 45 to 60 days, and once escrow closes, the lender allows you only 12 months to finish construction of the house on that site. This does not allow anywhere near enough time to design a home that is most appropriate for the site, let alone the individuality of the homeowners or their budget! The typical construction loan is really set up for someone who has chosen a plan out of a catalog and is quickly adapting it to a site.

What alternatives to conventional financing has anyone used, or is planning to use? How were the homes displayed in Susan's books financed?

Deo Signe,

Renaming this particular section is a great idea. Sarah agrees that it would broaden the topic to include what you are bringing up, which is an area that could most use some good ideas.

Thanks for the suggestion, and please join the discussion if you are reading this and have something to offer.

Marie

Marie,

Thanks for the encouragement. And I meant to make reference to Sarah, and not "Susan". Please accept my apology.

My first question for this forum is this: How does one finance the purchase of marginal land? I know I'm not alone in noticing that only the more challenging parcels are all that's left to develop, and often the only affordable land left anywhere you go is marginal.

I am currently about to open escrow on such a parcel of land, in the foothills above a metro area. This is one of those rare, really interesting scenic parcels, that poses some development challenges and cries out for thoughtful sensitive design, yet will reward richly with satisfying amounts of prospect and refuge, of comfort and revival.

Before I purchase it, though, I have to seriously assess the challenges. This parcel is 5 acres of eastern hillside with no water, no septic, no gas, and power is 1/3 mile away. All of which are negatives to prospective lenders (Caveat Emptor!).

I need to find a lender who would be willing to see this parcel's great potential value if developed sensitively. After talking to dozens of lenders, I find the only one willing is IndyMac Bank, who is well-known for construction loans (which I will eventually need as well). Has anyone secured a land loan through IndyMac? Are there any other lenders out there who would finance the purchase of such a parcel?

Like I mentioned in my previous post, it seems most lenders will only finance you if you're buying a flat parcel with all utilities and then building the equivalent of a production tract house!

I wonder how many banks turned down Edgar J. Kaufmann when he was trying to finance the construction of Fallingwater?

James,

You might find that you get further by doing some design work and preparing a budget to show potential lenders. Include an appealing image, a budget that includes all expenses to develop this land, and some "comps" from a realtor to show the final value. Lenders choke on things they don't understand - so include some 'splainin'

Hi James,

About a year ago, my dad and I purchased about 3.5 acres in the Puna district of Hawaii. It is in lava zone 2 (There are 10 zones, 10 being the safest and least likely to be affected by a live lava flow). The land does not have water, septic, or electricity. (I know, you must think I'm crazy The land has two structures, both of which are not legal. We financed the loan through Wells Fargo (It is a land loan) and have 5 years to build a house. Our loan is also known as a balloon loan because at the end of the 5 years, if we were not to build a house, the full remainder of the loan would be due.

I have just begun the process of researching house building and plan on applying for a construction loan to build a house. I believe that I can then combine the construction loan with the original land loan to have a regular mortgage.

Wells Fargo is pretty much the main bank that people deal with in the lower Puna area of Hawai'i because they are the only ones willing to give loans to people who are crazy enough to build close to a lava flow. (I guess I must be one of them!) There must be the equivalent of a Wells Fargo in your area.

Good luck!
Melissa

P.S. i just noticed you posted your message months ago! Hope this info is still relevant.