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?