Homescratch Homestead, Step 2: Financing


Step 2: Financing

Financing options are highly personalized and circumstantially specific. Once we discovered our property using the treasure mapping tool (read Part 1), we didn’t have the cash flow to cover both the cost of the property and the build. Conventional mortgage loans are not available without an existing house on the property, so we had to seek other options for available loans. Below is a synopsis of options that we found within our search parameters. 

Lender Land Loans

Land loans are riskier for lenders than mortgage loans. The value of raw land is less than the value of a house and historically more owners default on payment. In a foreclosure, there is no guarantee that the bank will receive the money back for the cost of the land. Due to the high risk, any lender who is willing to grant a land loan will require up to a 25% down payment with a higher interest rate and a maximum timeline of 5 years to pay the outstanding amount due, known as the balloon payment. 

Many banks, including our local bank, will not touch this type of loan due to the inherent risk, but we found that People’s Bank offers both lot loans and contruction loans. With People’s Bank, we had 2 options:

1. Take out a lot loan and keep our cash to build. 

2. Purchase the property and take out an owner/builder construction loan. 

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