Buying land in California and financing it with a loan

California Land Finance Budget (Example):

Purchase price of the land $ 300,000 Purchase price of the land

Soft construction cost $ 40,000 Plans and permits

Total construction cost $ 350,000 Construction costs

Closing costs $ 22,000 Fees, title and security deposit.

5% Misc. Reserve $ 17,500 5% of construction costs

Loan interest reserve $ 35,000 Interest on the amount withdrawn

Total construction cost $ 764,500

Appraised value $ 800,000 Estimated value of the land with the finished building

Down payment $ 191,125 25% of $ 764,500

California Land Lender Benefits

California land loan officers should be able to help you with the following information:

Evaluation of estimated annual taxes, insurance and HOA fees.

Approximate interest rate on the loan.

Initial payment is required.

Interpretation of your personal financial statements, credit scores, and income-debt ratios to finalize your eligibility.

Public services lead the way of finance

One important thing to consider when buying land in California is utilities. When building developers enter the construction stage to build new homes in Southern California, roads and utilities are built for a large number of homes. When the lender knows that a lot has access to nearby public roads and utilities, they are often more willing to provide financing for the land because there is predictable capacity to build on it, increasing the value of California real estate. and reduces the risk to the lender. The cost of installing utilities on a lot is not considered part of construction costs for construction.

Land Loans from a California Lender’s Point of View

California land loans are riskier for lenders than residential loans. The reason for this is that normally most people do not live on the land they buy because it is vacant. As a result, it is industry practice not to consider land as a primary residence until something is built, so it follows that vacant land is called investment property even if a person intends to build on it in the future. near. Also, vacant land is called commercial property in California, which is property that is used for investment purposes, even if the land is zoned residential and there are plans to build a primary residence. The importance of this categorization for lenders is that their risk increases when making land loans because a person can abandon a land loan more easily than a loan for a primary residence, since the borrower hypothetically has another place to live.

Land lenders will expect more from a loan than from a residential mortgage. Typically, a higher down payment is expected than for a residential home or condo in California. More preparatory work is also expected. Lenders can expect the borrower or buyer to bring a variety of items to the lender’s table for a construction loan. Here is a partial list of the potential requirements that some lenders stipulate to obtain a land loan:

Complete and permissible architectural drawings for what will be built on the site.

Detailed schedules for all aspects of construction.

Realistic budget finalized for the building.

Supervision Chart, which includes a list of builder contact information for contractors and assigned architect.

Proof of tied and insured builders and contractors.

Here is a list of the documentation required by a borrower to get started with a land loan in California:

Last 2 years of your federal income tax returns.

Last 2 months of pay stubs for both you and your spouse with contact information.

Your property information, if you are the current owner, including tax returns, HOA returns, current mortgage returns, and any other debt statements you currently have.

Any additional proof of income streams, including child support, trust fund, investment income, dividends, interest, rental income, social security, or government money.

A complete list of your bank accounts and documentation, including all your checking, savings, money markets, and banking information.

Some negatives and positives

One downside is that California courts of law have fewer regulations to protect the interests of land buyers than they do for California residential home buyers, since the purchase of land is considered an investment. On the positive side, land is like having zero property. California land buyers have a much easier time when it comes to planning what they want to build, as long as the construction plans meet the city’s zoning regulations and requirements for the location of the land. As a land buyer in CA, you also have a lot more flexibility in getting what you want than doing a residential home remodel, for example.

The best part of everything about getting a loan to buy land in California is that it forces you to think through the land buying process ahead of time, talking to the right people you will need to help you build a new home in South America. California and Financially budget sensitive deadlines so that you can ultimately become a true actor in the future development of a community for all to see. Plus, you’ll have a really cool story about your personal experience of the timeless California land building process.

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