Construction loan with land as downpayment

[Alexandra Scardo]

I need some help understanding how construction loans work when using land as a downpayment. We have several acres that we bought for $100k and still owe 50k on. The land value is, conservatively, $120k. There has not been a recent appraisal. I have spoken to both a mortgage banker and a modular cabin company and explained our situation. They have told me that assuming credit, debt, etc check out fine that I will have enough equity in the land to make the downpayment for the cabin that I want. I chose the cabin based on comps from the last 6 months in my area. The plan is to build and then cash out refi. So can someone explain how this works?

[Patrick Bavaro]

@Alexandra Scardo think of It this way. Should the bank ever need to foreclose on the property, they can’t sell the building without the land or the land without the building. So the value and equity of the land you have counts towards the total value of the deal. I just did this with a 4/3 new build out in Cape Coral and a construction to perm loan through the bank. Bought the land for $26k. Construction cost was $240k and the bank only required 10% down. Since the lot was slightly more than 10%, I did not have to come out of pocket further. Now I get to sit back, relax and collect $2300/mo in rent plus about $100k instant equity because of how the market is over there. Post construction appraisals for this model are coming back at $377k. Good luck! Hope this helped.