Can You Finance Land and a House Together?

It is possible to secure financing for both land acquisition and home construction as a single project. This approach simplifies the process for individuals building a new residence. Specialized loan products accommodate this financial undertaking, offering a streamlined path for aspiring homeowners.

Types of Combined Land and Construction Loans

The most common solution for financing both land acquisition and home construction is the construction-to-permanent loan, often called a one-time close loan. This product combines construction financing and the long-term mortgage into a single loan with one application and one closing. This structure helps borrowers avoid the complexities and costs of securing two separate loans.

During construction, the loan provides funds in scheduled disbursements, known as draws. These draws are released as specific construction milestones are achieved, covering costs for land, materials, labor, and permits. Borrowers make interest-only payments on disbursed funds during this period. Lenders conduct inspections at each draw stage to ensure construction progress aligns with the schedule and budget.

Upon completion and final inspection, the construction loan converts into a permanent mortgage. This conversion occurs without a second closing, protecting the borrower from potential interest rate increases. The permanent mortgage then features a traditional repayment schedule with principal and interest payments.

Government-backed options, such as FHA and VA construction-to-permanent loans, also exist. The FHA One-Time Close Construction Loan allows financing land, construction, and the permanent loan with a single closing and a lower down payment. The VA One-Time Close loan provides eligible service members and veterans with no down payment and a single closing. These programs offer similar benefits to conventional construction-to-permanent loans, emphasizing streamlined processes and reduced closing costs.

Preparing for Your Loan Application

Before applying for a combined land and construction loan, gather all necessary information. A strong financial standing is fundamental, requiring documentation of income, assets, and debts. This includes W-2 forms, recent pay stubs, personal tax returns, and bank statements to verify funds.

Information about the land is equally important. Provide proof of ownership or a purchase agreement. A legal description, professional survey, zoning regulations, and documentation confirming access to essential utilities are also necessary to ensure the site’s readiness for construction.

Details about the proposed construction project and chosen builder are integral to the application. This includes architectural blueprints, material specifications, and an estimated budget. The builder must provide credentials, including licenses, references, and proof of liability and builder’s risk insurance. Deciding on house plans and a budget with a qualified builder before applying can expedite the loan process.

The Loan Process from Application to Completion

The process of securing a combined land and construction loan begins after the application is submitted with detailed project plans. It then enters the underwriting stage. During this phase, the lender reviews the borrower’s financial stability, credit history, and the project’s feasibility.

Following underwriting, an appraisal is conducted based on the land value and projected market value of the completed home, utilizing the submitted plans and budget. This appraisal helps the lender determine the maximum loan amount. Once approved, the initial loan closing takes place, and funds may be disbursed for land purchase and initial construction costs.

As construction progresses, funds are released to the builder through scheduled draws. Each draw request is contingent upon completing specific construction milestones, such as foundation pouring or framing. Lenders require inspections before releasing subsequent draws to verify progress and quality. Throughout construction, borrowers make interest-only payments on drawn funds.

Upon completion of the home, a final inspection confirms construction aligns with approved plans and local building codes. Once the home passes this inspection and a certificate of occupancy is issued, the construction loan converts into a permanent mortgage. The borrower then begins making regular principal and interest payments on the full loan amount.