I am looking to purchase some land in cash (in the USA) and build a house on the land. I intend to use the land as equity (as part of the down payment) for a construction loan.

I'm looking to determine how much house I can afford to build... this should be a simple question, but I keep getting confused over this when using online mortgage calculators.

The value of the land is $200,000. If I use that as part (or most) of my down payment on a $1,000,000 loan... does that mean the bank will pay for $800,000 in construction costs, or $1,000,000?

On one hand I feel like the loan amount is $1,000,000 and so that's the amount that can be used for construction costs... but since 20% of that is land and not cash, it makes me feel like only $800,000 can be used for construction costs, because the total value at the end (land + new home) will be $1,000,000.

With land valued at $200,000 and a construction to permanent loan, how much of the building costs will the bank pay?

  • 3
    You're going to sell the land in order to get a loan to build a house on the land that isn't yours any more because you sold it...? May 16, 2022 at 8:38
  • 2
    Do you know what a down payment is? May 16, 2022 at 8:39
  • 2
    Do you mean you intend to take an equity loan out on the land to use as a downpayment for the construction loan? Because that's the only way your question makes sense, and in this case you'll likely not be able to get the loan since lenders tend to frown upon loan proceeds being used as downpayment.
    – littleadv
    May 17, 2022 at 0:59
  • You're mixing concepts here. When you buy a house you make a down payment to the seller, and you get a loan for the rest of the purchase price. That's not what you're talking about here. Whatever loan you get, that's what you have. The property isn't a own payment, but it's probably security for the loan, i.e., if you don't pay it back, the bank can take the land in a foreclosure. Oct 13, 2022 at 12:31

1 Answer 1


How much you qualify for will primarily depend on your income, other debts, credit score, land value. That part can't be answered by anyone other than potential lenders.

The most typical construction loan limits are based on you coming out of the project with about 20-30% equity either based on land value plus construction costs or on project appraisal. If it's based on land value and costs, that means your construction loan limit would be in the 700-800k range. If it's based on appraisal it could vary significantly.

If you are well-qualified you can likely find a higher limit, like 95% of construction costs.

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