For some, spending their savings re-investing their proceeds from a previous sale works best. Currently, interest rates on permanent financing are around 4%. If cash financing is an option, you are saving 4%. It is the same as earning 4% on an investment.
This option means going to a bank or other financial institution and obtaining temporary (usually 6-12 months) financing to get the project constructed. The rates are slightly higher, but given the short time-frame, it is affordable. This type loan usually requires 15 to 20% of the purchase price as a down payment. You can even use the equity in your lot towards your down payment.
When the project is complete, this financing allows the borrower to make payments over an extended period of time. For most of these type loans, the longer the period, the lower the payments. However, the longer the repayment plan, the more interest the borrower pays over the long-run. The typical project involves construction financing and is "refinanced" into permanent financing. Interest rates can be fixed or variable, depending on the borrower's choice.
This type financing replaces the need for construction/permanent financing. The borrower qualifies for the loan and once the loan is closed, construction begins. Once the construction is completed, the loan rolls over into a permanent loan. The advantages to this loan are slightly lower closing costs and only one closing. However, the borrower is locked into a set amount for construction. If, during construction, more money is needed, it must come from the borrower. So it is best to stick to your budget allowances. Some One-time close mortgages allow a contingency amount for those cases. Not all one-time closes are equal. Some require 15-20% down payments. Look for those that require ZERO or 3.5% down payments.
