Buy Land and Building a Home?

Question

If you buy a piece of land and build a house on it, how does it work in terms of mortgage? Do have to pay mortgage? I know you have to pay taxes.

Answer 1

You will have to have a couple of loans, some companies can roll it into one package.  

You usually don't have to pay the construction loan during construction but the interest will accumulate and construction loans aren't cheap.

The issue is having enough equity or cash to make it work.  You will need to buy the land.  Once you done that you will need a construction loan for the building of the home that the land can be financed back into.  Than you will need a traditional loan to cover everything once construction is complete.   Banks are tight right know so cash will need to keep the debt to value ratio how the banks want it.  With the way the market is going in many places they will have to consider that your house may depreciate before construction is complete.

Expect to go over budget and it to take longer than you think.   It can take a year or longer some times.

Answer 2

If you have enough cash to buy the land and pay to have the house built, no you do not need a mortgage.  This could be 300k.   If you are cash poor than yes you will need to borrow money.  

Answer 3

If you pay cash for the building, you own it. You could later get a mortgage if you like.  If you borrow the money for the building, it is a mortgage and you have to pay it. /