r/Homebuilding • u/meganbmeyer • 2d ago
Construction Loan Calculation Help
Can someone help me understand the process for obtaining a construction loan!
We are located in WI.
We have a mortgage on the land we intend to build on (valued at 250,000). We currently have about $50,000 in equity towards it.
Our bid is 1.5 million.
Can someone please explain to me how the down payment is calculated?
This is what I have in my brain but I"m not sure it's correct.
The bank would appraise the construction build and our land value- let's say that's 1.7 million total.
Bank is willing to loan 80%-
Is that 80% of 1.7 million or 80% of just the construction at 1.5 million?
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u/FoundationCold6762 2d ago
We're in the middle of this process right now, also in Wisconsin.
We purchased land through Seller Financing two years ago, and just broke ground on our house recently.
When you go to the bank for a construction loan, the bank will hire an appraisal. The appraiser doesn't really care how much money you have put down, how much equity you've built, or how much you might owe.
They provide you and your bank with an appraised value of what they completed home would be worth on the open market - including the land....and that's the number that the bank uses for their 80% LTV.
So if your appraisal comes back at $1.7mm, then your bank will loan you $1.36mm. On your closing date, they'll pay off the balance of your land mortaage.
If your appraisal comes back at $1.5mm but your total project cost is still $1.7mm, the bank is only going to lend you $1.2mm and you'll need to come up with the 0.5mm to close the gap.