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My wife and I are looking into possibly buying a lot in Chicago and having a custom home built on it.

My most basic question: is it possible to get a loan that covers buying the lot AND the cost of construction in a single loan? Does such a loan exist? I would imagine that the entire amount of the loan would only be doled out in increments as the construction went forward (to ensure proper collateral).

Any resources as a starting point for how the whole process works would also be greatly appreciated.

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    For some details on how construction loans work, see this answer of mine. With regard to your main question, my gut feeling is that it is not likely that a bank will offer the loan terms that you want, but in Chicago anything is possible. – Dilip Sarwate Mar 17 '13 at 12:51
  • Out of curiosity, where in Chicago? – John Bensin Apr 5 '13 at 20:46
  • Deal is basically dead at this point, so it's a moot point, but it was in Logan Square. – Phil Sandler Apr 5 '13 at 21:52
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Construction loans are typically short term that then get rolled into conventional mortgages at the end of the construction period. Since the actual construction loan is short term, you cannot combine it with a long-term land loan as well.

You could do the two separate loans up front to buy the land and finance the construction, then at the end roll both into a conventional mortgage to close out the land and construction loans. This option will only work if you do all three through the same lender. Trying to engage various lenders will require a whole new refinance process, which I very much doubt you would want to go through.

These are sometimes called combo loans, since they aggregate several different loan products in one "transaction."

Not a lot of places do land loans, so I would suggest first find a lender that will give you a land loan and set an appoint with a loan representative. Explain what you are trying to do and see what they can offer you. You might have better luck with credit unions as well instead of traditional banks.

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Construction loans have an entirely set of rules and factors than mortgages and that's hard to reconcile into one instrument. Also, I'm guessing the bank would be a bit shy about giving a commitment to a home loan before they have any information about how the construction process is going. There would have to be a ton of contingencies put into mortgage and they probably can't account for everything.

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