Construction Loan

[builder]

Anyone ever had one? Thelt's thread got me thinking, imagine that.


Here's what I want to do. I want to buy a piece of property that may or may not include a house. I want to then build a small non-traditional house of my own design. It would not be your normal house, but more like a cabin and a workshop. Everything would be built to adhere to local building codes of course. Over time, i would likely add to the original structure creating a more realistic sized home, but would rather do that in the future than now.

How hard is this to do? Does it matter what kind of house it is as long as it is a permanent structure?

[Thelt]

Obviously I am not the expert but I would guess it would based on the projected appraised value of the finished house/workshop. As long as there is sufficient means to appraise it, since it will be unique that might be hard, there should not be a problem getting a loan.

My dad did a construction loan a few years ago and built a house. He had a deal with the contractor. He drew down on the loan and paid the contractor in five installments. Each installment was due when a certain milestone was reached in the construction process.

Dad's old house was paid off and he owned the land so he had no issues in financing.

[Redsnapper]

A construction loan, you cannot be your own builder, you'd have to have a licensed and insured GC to build it, he may sub work out to you, though.

How much you can borrow is determined by the eventual value of the home, you can borrow up to 100% of this value, if it will be your primary residence, determined by an appraiser who looks at the plans, lot, and recent comps. You can build in an interest reserve into the loan, which would automatically make the payments on the interest only loan during construction, so absolutely no money out of pocket! You must have yo' sh*t together, lots of pre-loan documentation, plans, appraiser schedule, estimated draw schedule and construction time line, income and asset (if needed) documentation, and a good credit score is must. If you have any problem at all with credit, I'd suggest looking into fixing that now, rather than later. Submit to underwriting, get the loan, then you work closely with builder and appraiser, to make sure all is on schedule, they disperse money at previously estimated times, then you move in. They'd like you to hold onto the house for at least 2 years, in order for the lender to re-coup some interest on the post construction part of the loan.

I think that's it in a nutshell, I'm doing one right now in Asheville, I find it interesting and a f*cking great way to develop equity, quickly! I can answer more specific questions as well.

I think, if any, problem you may run into with your design, is finding comparables that will support the value of construction, other than that, it's all up to credit score, income, plans, specs, and finding a competent GC.

[builder]

gracia

[Thelt]

I thought you could be your own GC in North Carolina as long as you were building your own house. I guess I was wrong. I have heard several people say that though.

[Redsnapper]

I thought you could be your own GC in North Carolina as long as you were building your own house. I guess I was wrong. I have heard several people say that though.

That actually depends on the lender; if you don't need a loan, you can be your own GC in a heart beat, as long as you are building your own primary residence. Lenders have their own guidelines in order to use their money, and so far the ones I've run into, want you to use a licensed GC to perform the work, although, they can sub work out to you.

[builder]

I'm still thinking I'll buy something with a livable, but not really what I want house. The land will be the important part of the deal. Then, I'll build what I want out of my own pocket or with a personal/equity (if there is enough) loan. I'm thinking over 3 years I should be able to put together at least a workshop and cabin structure and eventually build on to it making the house larger as my own money is available.

[Thelt]

That actually depends on the lender; if you don't need a loan, you can be your own GC in a heart beat, as long as you are building your own primary residence. Lenders have their own guidelines in order to use their money, and so far the ones I've run into, want you to use a licensed GC to perform the work, although, they can sub work out to you.

I see it is a restriction in place by the lenders and not by NC law. I think it is fairly common in log houses for the owner to act as the GC.

[Freakshow]

Gonna have a HARD time getting a lender to lend on a project when you aren't using a licensed contractor. Think of it from the lender's perspective.

[builder]

Gonna have a HARD time getting a lender to lend on a project when you aren't using a licensed contractor. Think of it from the lender's perspective.

I know that. I've been thinking of that all along. That's why I'm still considering the traditional route and building when my own finances allow. Depending on the design, I could have an enclosed shell for only $15k. The rest would be added as money allowed. It's not like I'm looking to rush this thing into being next month.

[Thelt]

I think the reason you can do this with log homes is that they come in a kit and are pre-designed. That takes away a lot of the risk of structural problems. Even with that I think the bank sends out an inspector to examine the work prior to releasing the draws.

[Redsnapper]

I think the reason you can do this with log homes is that they come in a kit and are pre-designed. That takes away a lot of the risk of structural problems. Even with that I think the bank sends out an inspector to examine the work prior to releasing the draws.

Thelt - So are modular homes. Log homes are VERY difficult to comp. out, for ease of loan and re-sale ability (buyer getting a loan), I'd suggest sticking with a more traditional type structure, although if you found yourself in a log home community, then it may be attractive, otherwise see above...

Builder - when constructing this new structure, make sure it's no more than a glorified shed, b/c having 2 living spaces on 1 piece of land, is a difficult sell, according to Fannie Mae. It also may not hold it's value, if you are dead set on building something, I'd look at raw land, or adding onto an existing home, and only having one SFR per plot of land.

[Thelt]

I have moved away from building with log anyway. I am considering a modular. I looked at a model from Palm Harbor that I liked a lot. All that being said my dad had very little trouble getting his financing in place. He had a good chunk of money to put down and put three acres of land with it though.

[builder]

Builder - when constructing this new structure, make sure it's no more than a glorified shed, b/c having 2 living spaces on 1 piece of land, is a difficult sell, according to Fannie Mae. It also may not hold it's value, if you are dead set on building something, I'd look at raw land, or adding onto an existing home, and only having one SFR per plot of land.

Whatever I build would either be added onto later as a full residence removing the existing house, or it would be built in a way that it can be converted to a shed/outbuilding. I've already thought all that up.

[Redsnapper]

I have moved away from building with log anyway. I am considering a modular. I looked at a model from Palm Harbor that I liked a lot. All that being said my dad had very little trouble getting his financing in place. He had a good chunk of money to put down and put three acres of land with it though.

I'm currently doing the financing for a modular build in Asheville, that seems to be a little easier since most of the home is built off-site, it comes ready to bolt together, including copper water lines, electrical, dry wall, and one coat of paint. Construction time is much faster, and holds the same value as a site built home. If you are building your primary residence you can borrow up to 100% of the finished project, and if there is room, you can build in an interest reserve to make your payments during construction. I thought that was pretty neat, no money out of pocket.

[Thelt]

I'm currently doing the financing for a modular build in Asheville, that seems to be a little easier since most of the home is built off-site, it comes ready to bolt together, including copper water lines, electrical, dry wall, and one coat of paint. Construction time is much faster, and holds the same value as a site built home. If you are building your primary residence you can borrow up to 100% of the finished project, and if there is room, you can build in an interest reserve to make your payments during construction. I thought that was pretty neat, no money out of pocket.

I looked a company in Asheville called Deltec. They build a sort of modular/kit home. They are pretty neat because they build round houses. They do not seem nearly as professional as Palm Harbor though.

http://www.deltechomes.com/