Don't Buy Land Until You Have Your Construction Loan Approved

"Hi Carl,
I just got your book. Have been reading the web site but have not started
the book yet.

Trying to figure out the best way to leverage what I have for money to have
the most control over my bank.

We just bought 3 acres on the outskirts of Des Moines along Saylorville Lake.
The property has a creek that runs along the front so I need to install a
fairly large culvert (48") and build a drive across. I already have an
excavator lined up to do the work and great back the banks and add rock. Not
a huge cost as he does work for a company I work for.

The house we are building I am estimating will cost about $230K without the
land. The land is appraised at 62K without the excavation work which I think
should increase the price significantly.

After the road is installed and land cleared we have about 140K cash left
after the sale of my house and my fiance's house. From what I have read it was
OK to buy the land before getting the construction loan.

So do you have any tips on how to use what we have for money to play the
bank? I understand the pitfalls of banks loaning to people that want to
general themselves. My dad was a bricklayer and I am no stranger to
construction as I worked for him when I was young. One of my best friends is
a home builder and we can use him if needed as a construction supervisor.
County has approved my prints (self drawn).

Thanks, great tips on this site. Look forward to the book.


Hi Rich,

Construction Lenders have tightened up their criteria, but if you have great credit and perseverance, you should succeed in finding a lender that will be glad grant you a construction loan, even with you as an owner/builder.

You see, you have $240,000+/- as your down payment. You are not a risk to them. Put together a good cost estimate, a simple time line, and the fact you have access to a General Contractor for advice, and you should be OK. Stick to small "home town banks and credit unions in you shopping for a loan.

But for anyone else who is thinking about buying the land before getting approved for their construction loan, "Don't buy land until you have your construction financing locked in!"

In establishing a budget, knowing the cost of the land, that is, having it picked out, is crucial in establishing an accurate budget, but buying it before getting your construction loan approved is dangerous...especially in today's tight lending market.

If you are worried that you may lose a particular piece of land if you don't hurry up and buy it, you should follow my advice in chapter 2 of my book, "Be Your Own House Contractor", and make an offer to purchase "contingent upon getting a construction loan"!

"Contingent" means, "dependent on something else". In this case, getting a construction loan.
No loan, you get your earnest money (deposit) back.

Here's a short paragraph from chapter 2:

Land Is the Second Step
"You only need to select the land at this point. If you find a particular lot and don’t want to risk losing it, you can make an offer with the understanding that your binder or deposit will be refunded if certain conditions or criteria are not in your favor or if you can't obtain construction financing. This is called a contingency offer. Don’t put more than 10 percent down as a binder or deposit, and if you are using a broker, be sure that the money is held in escrow."

There are other thing to consider as "contingencies as well as being able to obtain financing, and you'll find a checklist of them in chapter 2.

And, a PDF copy of this checklist is on my "Getting Started" page on, under # 9, Free sample contracts and forms.

You can and should think of other contingencies that may pertain to a particular piece of land that you are interested in.

Things are tight now, but they will loosen up again. I've been through this three times and they always do.

You see, Lenders only make money lending money.