Construction Loans

[_RaT_]

It's been awhile since I built a house on specualtion or "spec house" but am in a position now of building a home for our family. Where, what, etc. is available in construction loans and how do they work today? Are they available in 2 year loans to be converted to a a conventional. Are there other options to avoid the possible rise in interst rates? Since I will build much of the home myself, it will take longer. Any advice is appreciated. Thanks, Rat...

 

[CTyler]

I don't know much about whats available since what we had fit our needs. Our construction loan was for 1 year. We could not lock into a rate on the mortgage loan until we were with in 60 or 45 days, forget which, of being done. My Wife took care of the financials I just provided the money.

I know we could have extended the load amount if we ran out of money. We did run out of loan money but getting more on the loan was equivilant of starting that whole process over again. Consequently I did a LOT more work than I planned on doing. However we still have cash reserves and did everything possible to keep it just in case something unexpected happened.

We took the whole year but spent about four months of that doing nothing. We got the shop up and paid cash for it and then decided to put it into the loan vs using cash reserves. That was in January and could not do much until May. The framer started the first of June and we were done a couple weeks ago. It took forever for the ground to be dry enough to pour the foundation.

Toward the end of the contruction loan we were pre-aproved for the mortgage loan and just had to provide the last two months paystubs and bank statements.

On the house and shop we did all the dirt work except for digging the walkout basement. Could have done that as well but they only charged $750 and were done the same day vs me taking 3 to do it. I marked everything out and set the stakes etc.. so all they had to do was dig. Did all the prep work for the shop floor, driveway pad and garage floor, rock packing, plastic rebar, forms etc.., hired the actuall cement work. Did the septic tanks, drain field, trenching for elec, sewer, comm, culvert and some of the water to the well. Did all the elec, water, sewer for the shop. Did all the ceramic and wood flooring in the house, hung all the doors, casement and baseboard trim. Wired the house for sound, phone, ethernet and cable. Did all the caulking, priming and painting inside and out as well as all of the cabinet and trim stain and poly.

THANK GOD its done!! Lost 15+lbs in the process. Literally worked my *** off...LOL!!!

I have a LOT of respect for people who do this day in day out for a living. Some of those high prices to do things don't look so high any more.

 

[MarkV]

Hi Rat,

I don't have all the answers for you but can give you an idea of how it works around here. The banks in our area want a set of professional plans they can appraise a value to and proof of clear ownership of the building lot. They are normally looking for a plan that will appraise at a minimum of twice the lot value. ($100K lot plus $200K house equals $300k package) The loans are normally variable and tied to the prime plus 1-2 points. Most of the loans I see are for six months with many of them easily extended to twelve. A loan over 12 months becomes harder to find. Sorry, but owner/builder loans are harder to find here also. Moneys are dispersed in draws, normally six here, with the bank making inspections at the different phases. Keep in mind that this is the system in a large city and may well be different in a more rural area. When we built our weekend home we paid as we went but the building inspectors had no problem with it taking a long time and in the city that would have been a problem. May be the same with building loans in your area.

As an owner/builder I would start talking to bank officers and see what they will do in your area. Best of luck, I've done it and I don't envy the amount of work you have planned. It sure is rewarding when it is all done though.

MarkV

 

[dmccarty]

Rat,

There are so many options out there it is unreal. We have been
working with just one bank for years on our property/house
load issues. It looks like we are just about ready to go but I
have been saying that for a good 6 months....

The bank we are using has been changing the loan process. My
wife has been handling this side lately but they have shorter
lock in periods. I think there was a 15 and a 30 day. I'm sure
there are others. The construction loan lasts for N months
where N can vary. I think we where going for an 9 month loan.
At the end of the loan or construction to perm is rolled over to
the rate bases on the lock in period. We only have one closing
up front.

I have done all of the design work for better or worse. Our
builder thinks are plans are pretty good and far better than
what the inspectors usually see. The bank and appraisers did
not have a problem with the plans.

I would call around to find out what options the banks are
doing and see what fits you best. They sure are flexible in NC.

Later,
Dan McCarty

 

[Michael_S]

I'm about to begin construction on a new home for my family. I plan on building most of the home myself and acting as my own G.C. In Texas, backs will not loan to an owner/builder. I took a different route.
I obtained a home equity loan against our current home and plan on using the funds to build the new one. No closing cost. All other fees paid by the bank. Interest is about half a point higher than a conventional mortgage, but that it offset by the thousand saved in one time closing fees. You might look into this as an option.

 

[MF1455v]

I had the same problem as "hayseed". In Texas the way the laws are written a person cannot act as there own general contractor on their own home. At least on paper. I had my dad sign as me G. C. and never had a problem. After the fact I found out I could have had my wife sign sense her name was not on the construction loan. However her name was placed on the final mortgage.

My construction loan was for 6 months. It tool 8 months to complete the house. At the 6 month point I only had to pay the interest that had accumulated to that point and sign 1 paper for the continuing of the loan for another 6 months. Trick here was I was approx 75% complete with the house and the bank had given me 75% of the appraised value of the house. It had not taken near that much money with me doing the work so I extra money from my construction account to pay the interest. Just had to pay my self for all the hard work I had done, so I could pay the the interest from my personal account. /forums/images/graemlins/smirk.gif

Don't sweat the small stuff and have fun! Building my own home has been the most rewarding thing of my life. So much so, I am going start again in about a year.

 

[_RaT_]

Thanks for the comments guys. I spoke with a banker friend and here in CA you can get a contruction loan as a owner builder. It is for 1 year and then regardless of whether you are finished or not turns into a conventional loan. The interest rate is locked in on the day of signing which was a concern I had. The biggest drawback is the rate. Right now it is 6-5/8 for this kind of loan. I am told thats not the greatest and quite frankly really have not done enough looking to know. If I get a general contractor license, it will be slighlty less. I have a electrical license so its possible a GC license is in my future since I have already taken the law aspect of the CA. contractors requirements (even though I'm sure I forgot it all) Thanks again for the information. I realize I;m in good company regarding building this house myself or at least good portions of it. Rat...

P.S. I do Rat... as it's the first 3 letters of my last name. I started just doing Mark back in the begining of TBN but folks were getting me and Mark Chalkey mixed up. It seems so long ago when he was such an incredibly active member. I wish him the best. For those of you who never knew him, he modifyed everything on a tractor you could, never satisfied with stock. /forums/images/graemlins/grin.gif

 

[dmccarty]

Rat,

The loan rate is very high by national and NC standards. In NC
the loans in the paper where around 5.5% last weekend. Some
a little less and some a little more.

http://www.bankrate.com is a site with
lots of loan information. On the first pages you can see a link
to the current 30 year rates. If you follow the link you can
search for rates by state.

Hope this helps,
Dan McCarty

 

[_RaT_]

It does Dan, thanks

 

[BubbaJr]

Hi Rat,
We were in your shoes a couple of years ago. I tried to find a construction loan on the Internet, but was told repeatedly that they don't make construction loans. So our only option in our rural area was the local bank. We got a 1 year construction loan at 7.5%. The banks loan officer came out to do an inspection and take pictures before each draw for the next phase. At the end of the construction we converted the loan to a 30 year loan.
Here is the neat part. We made the first payment, and exactly 2 weeks later we made a payment that was 1/2 of the normal payment, then continued this every 2 weeks. This way you make 26 payments a year, which is equivalant to 13 months. What this does is allow you to put more of your money against the principal rather than just interest. When we can afford it, we make an additional payment timed so that it covers mostly principal. When I told the loan officer we wanted to do this, he looked at me like I had just discovered the big bank loan secret. Then he figured out that doing it this way would shorten the life of our loan by 7 years, and that was without the extra payments. So far it has worked out just fine, without any surprises. /forums/images/graemlins/grin.gif