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I have a budget of $ 100,00 to spend on building a modest home in a rural area. According to financial institutions, how much of that $ 100,000 should be spent to purchase the land?

**Bonus Question**
Is it better to pay cash for the land and finance the entire house or is it better to finance them both together?
(This would be in Wayne County, West Virginia)

4 Thoughts on When Building A Home, What Percentage of Money Should Be Spent on the Land?
  1. Reply
    December 26, 2012 at 2:51 am

    15-25%. If you buy the land, you can show that to the bank as your investment, so you can get a mortgage for the entire cost of the house.

  2. Reply
    December 26, 2012 at 3:18 am

    That will depend on the area you are in. In my county, you just about couldn’t get any land for that amount. These days, the dirt under the house is worth more than the house is.

    It would be easier to get a loan if the land and home were financed together. After all, if you default on the home, you are going to lose the land as well.

  3. Reply
    December 26, 2012 at 3:50 am

    Rule of thumb is 5 X lot costs for the total project cost. Lot cost $ 20,000.00 then total house and lot cost $ 100,000.00. Lot cost is $ 100,000.00 then house and lot cost is $ 500,000.00. Sometimes 4.5 x lot cost is used depending on market conditions. Last subdivision I did was 782 lots and retail lot costs were averaging $ 45,000 per lot, homes selling for $ 225,000 and up to $ 325,000.00.

    That is the formula that developers and builders use in evaluating potential projects. That is the final price the public would pay not the developer or builder. They need to be able to sell the final product- the home on its lot and know what is affordable to the general public. Many financial institutions also look at that.

    If you pay cash for the land that counts towards the total purchase value in the lenders eyes. If your total home and lot loan is 80% or less you avoid PMI which depends on the loan amount can cost you $ 25 to $ 100 per payment.

    The way to build YOUR own wealth is owe as little as possible, pay down as much as you can on the house and finance as short a time as you can afford to make payments. If you can afford the 15 yr payment schedule, go 15 yrs. You build up equity faster, pay less overall interest and pay it off faster- meaning it is yours and all you have to pay after that is taxes and insurance. Aaaahhhh the power of being debt free!

  4. Reply
    valintines tattor
    December 26, 2012 at 4:42 am


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