How to Use Your Land as a Down Payment for a Construction Loan

How to Use Your Land as a Down Payment for a Construction Loan

A construction loan gives a homeowner the opportunity to build the house of his or her dreams.

No longer is he or she relegated to cookie-cutter homes in a neighborhood.

Now is the time to use that paid for lot or land as equity for a construction loan to build your house.

Use the equity as a down payment and avoid taking any cash out of pocket in the initial part of the process.

Step 1

Contact a lender and request a loan application. Be sure to request a lender who can handle a construction loan, not a traditional mortgage.

Step 2

Fill out the application and provide the lender with bank statements, pay stubs, and tax returns.

List the down payment as the equity in the land. The equity is the percentage of the property owned free and clear, without any liens attached to it.

Step 3

Provide the lender with a copy of your contract with your builder and the architectural designs for the home.

Step 4

Request an appraisal on the property, both “as is” and based upon the finished product.

Ask your lender to lend you the amount needed to build the house and to use the equity as the down payment on the transaction. Things You’ll Need

  • Deed for land
  • Construction plans
  • Loan application
  • Bank statements
  • Pay stubs
  • Tax returns
  • Builder contract
  • Appraisal


-Ask the lender to pay the builder directly, as soon as preset requirements are met. This keeps the builder accountable and keeps you from spending the funds on other items for the home.


-Construction loans are charged a higher interest rate than a traditional mortgage, due to the risk to the lender.

Be sure to inform the builder that the higher interest rate is not desirable and you would like to refinance to a longer-term mortgage with a lower rate.

In other words, you want the house to be completed as soon as possible.