Secured Your Lot Loan? The Next 4 Steps

People who want to build homes upon vacant land will typically need a lot loan. There are 4 steps to complete in residential land development after securing your lot loan. These steps start after obtaining the money and take you through development to a finished product.

Your lot loan will allow you to purchase the land and begin the task of developing it. To develop the property you'll need to interact with a few professionals that can help you take the raw land and turn it into a newly constructed home. Most of the professionals listed below will give you free quotes to develop a construction and development budget, which in turn will allow you to get development financing added to your lot loan or placed behind it.

Step 1 - The Archi tect

The architect is one of the first steps in physical development. They will take your ideas for the home and turn them into three dimensions. They will create architectural drawings and construction drawings which your contractors and subcontractors will use to complete the actual building. The architect will also estimate the amount of building materials needed so your contractor can bid the project. Start by looking in your local area or ask other building professionals for a referral to a trusted architectural firm.  If you are working on a small budget you may want to work with a sole practitioner rather than a large firm as the sole practitioner's rates will probably be lower. They're usually more amenable to working with new clients.

Step 2 - The Contractor

Once the architectural drawings and material estimates are complete you can deliver those documents to a contractor who will bid the project for you. The contractor will call on their sub-contractors and material suppliers to determine how much the required materials will cost. To that, the contractor will add their development fee. Contractors also work locally, so start by looking through the yellow pages or by calling your local building guilds and associations. Make sure you check references and get their licensing and bonding information before you sign any contracts.  Additionally, your lender may have to sign off on the builder before they allow you to draw funds for construction.

Step 3 - Obtain Building Permits

Each municipality has rules regarding development and construction. You'll need to contact your local planning and development department and research their building codes and permit process. Most municipalities will require you to submit construction drawings and a survey for your property.  You'll have to apply for a permit and pay the permit fee. The planning and development board will review your permit and either approve it or deny it depending on the completeness of the application.  If the permit is approved you will be clear to build on your lot.

If you plan to pay cash for the construction you can skip to step five.  If you plan to get a loan for the construction, read on.

Step 4 - Construction Financing

Once you have the approved permits you can apply to a lender for construction financing that will allow you to build your home.  Construction applications are much like a regular home loan application in that the bank will run credit and make sure your income can support the additional loan taken out. The lenders will want to see the construction drawings, permits, construction budget, and licensing information for all the contractors involved. The FHA and HUD have great construction loan programs that require little upfront money, and can also refinancing your existing lot loan so that you have only one loan on your property at a time. Other local commercial lenders and community banks are the best sources for these construction loans.  Start there.