cancel
Showing results for 
Search instead for 
Did you mean: 

Construction/Building Loan

tag
camera_jen
New Contributor

Construction/Building Loan

Has anyone ever been able to finance building their own home?  This is my goal within the next few years.  

 

Bottom line... I have worked in the construction industry for 10 years and I'm a project  manager.  All the nonsense with dealing with architects, pulling permits, managing subcontractors, etc that no one likes to deal with, that's my job.  My boss holds a GC.  I can get materials at cost.  So you can see why building a house is more attractive to me than buying something already built because I'd just be paying for the cost of building, no profit.  I'm not worried about being qualified in the eyes of the bank to do the build.  

 

What I don't do and what I'm completely clueless about is how to finance it.  Does anyone have any advice?  I know I have to obtain a construction loan and it will be converted to a mortgage.  I understand construction draws and inspections.  I don't know the credit qualifications for something like this, income requirements, and when I will have to start paying it all back.  Paying rent on my apartment and a construction loan is probably not something I can afford for more than a couple of months since I'll be just putting down my down payment  (I'd have to finance in my own project management fees just to make it sustainable).

 

Surely there is a way to do this.  I hate to spend 40% more on a home just because of paperwork.  Any help is greatly appreciated.

Message 1 of 10
9 REPLIES 9
Lemmus
Established Contributor

Re: Construction/Building Loan

...just to give you an idea of what is normally required for construction loans ...hth

http://www.rd.usda.gov/files/3565-1chapter05.pdf


Helpful Links: Do I Qualify? | Mortgage Calculator | USDA Mortgages | Opt Out | FICO Versions
Last HP: 11/04/15 | myFico 3B Jun 10 '15:FICO8 EQ - 752 | TU - 763 | EX - 750
Message 2 of 10
Anonymous
Not applicable

Re: Construction/Building Loan


@camera_jen wrote:

Has anyone ever been able to finance building their own home?  This is my goal within the next few years.  

 

Bottom line... I have worked in the construction industry for 10 years and I'm a project  manager.  All the nonsense with dealing with architects, pulling permits, managing subcontractors, etc that no one likes to deal with, that's my job.  My boss holds a GC.  I can get materials at cost.  So you can see why building a house is more attractive to me than buying something already built because I'd just be paying for the cost of building, no profit.  I'm not worried about being qualified in the eyes of the bank to do the build.  

 

What I don't do and what I'm completely clueless about is how to finance it.  Does anyone have any advice?  I know I have to obtain a construction loan and it will be converted to a mortgage.  I understand construction draws and inspections.  I don't know the credit qualifications for something like this, income requirements, and when I will have to start paying it all back.  Paying rent on my apartment and a construction loan is probably not something I can afford for more than a couple of months since I'll be just putting down my down payment  (I'd have to finance in my own project management fees just to make it sustainable).

 

Surely there is a way to do this.  I hate to spend 40% more on a home just because of paperwork.  Any help is greatly appreciated.


We're building a home right now, just got financing approval a month ago now waiting for our architect to finish plans. We've hired a GC, because with any bank we talked to - the person taking the draws is required to hold a GC license.  The plans must also be set in stone, down to each finish, with the bank then appraising the house based on those plans, so that they know how much they will loan (no bank I know of loans more than 80% of the appraised value, so 20% down is a must). When you have a construction loan, your payment is interest only (usually higher due to the risk) for each month, based on the draws that have been made to that point. Our builder takes the amount of the loan, divides it by months to finish and takes even monthly draws.  Once you get the certificate of occupancy, the bank will convert the loan to your mortgage and that payment will take over from then on.  

 

I'd say that for you, the biggest hurdle you'll face is finding the right bank. Most likely, your best bet is your small, hometown, local banks. Good luck!

Message 3 of 10
Anonymous
Not applicable

Re: Construction/Building Loan


@Lemmus wrote:

...just to give you an idea of what is normally required for construction loans ...hth

http://www.rd.usda.gov/files/3565-1chapter05.pdf


Just to be clear, these are requirements for USDA loans, NOT conventional loans, as they are not guaranteed or insured by the federal government. 

Message 4 of 10
camera_jen
New Contributor

Re: Construction/Building Loan


@Anonymous wrote:

@camera_jen wrote:

Has anyone ever been able to finance building their own home?  This is my goal within the next few years.  

 

Bottom line... I have worked in the construction industry for 10 years and I'm a project  manager.  All the nonsense with dealing with architects, pulling permits, managing subcontractors, etc that no one likes to deal with, that's my job.  My boss holds a GC.  I can get materials at cost.  So you can see why building a house is more attractive to me than buying something already built because I'd just be paying for the cost of building, no profit.  I'm not worried about being qualified in the eyes of the bank to do the build.  

 

What I don't do and what I'm completely clueless about is how to finance it.  Does anyone have any advice?  I know I have to obtain a construction loan and it will be converted to a mortgage.  I understand construction draws and inspections.  I don't know the credit qualifications for something like this, income requirements, and when I will have to start paying it all back.  Paying rent on my apartment and a construction loan is probably not something I can afford for more than a couple of months since I'll be just putting down my down payment  (I'd have to finance in my own project management fees just to make it sustainable).

 

Surely there is a way to do this.  I hate to spend 40% more on a home just because of paperwork.  Any help is greatly appreciated.


We're building a home right now, just got financing approval a month ago now waiting for our architect to finish plans. We've hired a GC, because with any bank we talked to - the person taking the draws is required to hold a GC license.  The plans must also be set in stone, down to each finish, with the bank then appraising the house based on those plans, so that they know how much they will loan (no bank I know of loans more than 80% of the appraised value, so 20% down is a must). When you have a construction loan, your payment is interest only (usually higher due to the risk) for each month, based on the draws that have been made to that point. Our builder takes the amount of the loan, divides it by months to finish and takes even monthly draws.  Once you get the certificate of occupancy, the bank will convert the loan to your mortgage and that payment will take over from then on.  

 

I'd say that for you, the biggest hurdle you'll face is finding the right bank. Most likely, your best bet is your small, hometown, local banks. Good luck!


Thank you!  I feel pretty good about going to banks.  I have had accounts with Chase for a long time, and in my old role I brought them several million dollars worth of accounts so they know me pretty well.  I just opened an account with the credit union a couple of weeks ago to build a history with them for when I do this.  I really want a log cabin and to find empty land and build something like that in the middle of surburbia where everything looks the same is going to be tricky (my feel is they will have no idea how to appraise it).

Message 5 of 10
ezdriver
Senior Contributor

Re: Construction/Building Loan

Financing a DIY log home is going to be a significant challenge ... even with your experience and your boss's GC license. If you or he had not built a log home before, then you will run into trouble. If not a traditional, stick-built home, you need a speacialty lender. Try searching for a lender that has experience financinh log homes.

 

I'm considering doing the same this in the Ashville NC area in the next couple of years. To save myself the headache, I plan to either buy the log home and have it assembled by a log-home builder and then your friend with the GC license can do all of the finishing work.

 

 

Message 6 of 10
camera_jen
New Contributor

Re: Construction/Building Loan


@ezdriver wrote:

Financing a DIY log home is going to be a significant challenge ... even with your experience and your boss's GC license. If you or he had not built a log home before, then you will run into trouble. If not a traditional, stick-built home, you need a speacialty lender. Try searching for a lender that has experience financinh log homes.

 

I'm considering doing the same this in the Ashville NC area in the next couple of years. To save myself the headache, I plan to either buy the log home and have it assembled by a log-home builder and then your friend with the GC license can do all of the finishing work.

 

 


That's a little frustrating to hear.  Anyone with a GC can follow City/County approved construction drawings aka blue prints.  

 

The log homes from places such as Coventry are considered modular and present problems of their own.  For example, with an FHA loan they will only finance modular homes for 25 years.  I don't even understand why a house that has a foundation and is built ground up is considered modular, but it is.  The cost of the materials is only about 15% of what they charge for the log home packages.  The architectural drawings are under $5k at cost.  I could save what I'd be spending on the land if I don't go with a pre-fab.  With the land value being so high where I live, the only way I can afford to buy a home is if I do the build and save on the actual building.  I would think this is somewhat attractive to a lender because my home upon completion would be worth more than I've mortgaged.  My only other possible option would be to move into a neighborhood townhouse and I'd be in HOA hell.

Message 7 of 10
StartingOver10
Moderator Emerita

Re: Construction/Building Loan


@camera_jen wrote:

@ezdriver wrote:

Financing a DIY log home is going to be a significant challenge ... even with your experience and your boss's GC license. If you or he had not built a log home before, then you will run into trouble. If not a traditional, stick-built home, you need a speacialty lender. Try searching for a lender that has experience financinh log homes.

 

I'm considering doing the same this in the Ashville NC area in the next couple of years. To save myself the headache, I plan to either buy the log home and have it assembled by a log-home builder and then your friend with the GC license can do all of the finishing work.

 

 


That's a little frustrating to hear.  Anyone with a GC can follow City/County approved construction drawings aka blue prints.  

 

The log homes from places such as Coventry are considered modular and present problems of their own.  For example, with an FHA loan they will only finance modular homes for 25 years.  I don't even understand why a house that has a foundation and is built ground up is considered modular, but it is.  The cost of the materials is only about 15% of what they charge for the log home packages.  The architectural drawings are under $5k at cost.  I could save what I'd be spending on the land if I don't go with a pre-fab.  With the land value being so high where I live, the only way I can afford to buy a home is if I do the build and save on the actual building.  I would think this is somewhat attractive to a lender because my home upon completion would be worth more than I've mortgaged.  My only other possible option would be to move into a neighborhood townhouse and I'd be in HOA hell.


The 25 year option is not bad for you at all to consider. Run the numbers on any mortgage calculator and you will see the monthy payment is negligibly higher. As a quick example, if you finance $200k over 30 years at 3.75% your P&I payment is $926.23. If you finance $200k over 25 years at 3.75%, your  P&I payment is slightly higher ($1028.26) but you save $61,695. over the 30 year loan because you have 60 fewer payments (5 years).  To me it's a no brainer - if you decide to go FHA.  

 

As to DYI builders, there are plently of issues associated with the homeowner builder not following code and/or taking shortcuts so that the ultimate value is much less than the appraised value off the blueprints. Lenders have learned to require a GC to get the job completed properly.  This doesn't mean all homeowners would take these shortcuts, but enough have to make this fairly universal with construction perm loans IME.

Message 8 of 10
Anonymous
Not applicable

Re: Construction/Building Loan


@Anonymous wrote:

@camera_jen wrote:

Has anyone ever been able to finance building their own home?  This is my goal within the next few years.  

 

Bottom line... I have worked in the construction industry for 10 years and I'm a project  manager.  All the nonsense with dealing with architects, pulling permits, managing subcontractors, etc that no one likes to deal with, that's my job.  My boss holds a GC.  I can get materials at cost.  So you can see why building a house is more attractive to me than buying something already built because I'd just be paying for the cost of building, no profit.  I'm not worried about being qualified in the eyes of the bank to do the build.  

 

What I don't do and what I'm completely clueless about is how to finance it.  Does anyone have any advice?  I know I have to obtain a construction loan and it will be converted to a mortgage.  I understand construction draws and inspections.  I don't know the credit qualifications for something like this, income requirements, and when I will have to start paying it all back.  Paying rent on my apartment and a construction loan is probably not something I can afford for more than a couple of months since I'll be just putting down my down payment  (I'd have to finance in my own project management fees just to make it sustainable).

 

Surely there is a way to do this.  I hate to spend 40% more on a home just because of paperwork.  Any help is greatly appreciated.


We're building a home right now, just got financing approval a month ago now waiting for our architect to finish plans. We've hired a GC, because with any bank we talked to - the person taking the draws is required to hold a GC license.  The plans must also be set in stone, down to each finish, with the bank then appraising the house based on those plans, so that they know how much they will loan (no bank I know of loans more than 80% of the appraised value, so 20% down is a must). When you have a construction loan, your payment is interest only (usually higher due to the risk) for each month, based on the draws that have been made to that point. Our builder takes the amount of the loan, divides it by months to finish and takes even monthly draws.  Once you get the certificate of occupancy, the bank will convert the loan to your mortgage and that payment will take over from then on.  

 

I'd say that for you, the biggest hurdle you'll face is finding the right bank. Most likely, your best bet is your small, hometown, local banks. Good luck!


If you already own land that is paid for, do you still typically have the 20% down payment with a new construction home loan? We recently inheirted land and are looking to build our first home on it. I've heard mixed info about the land being required to be deeded in your name for a certain period and so forth. Any info and advice you can give would be extremely helpful and greatly appreciated.

Message 9 of 10
StartingOver10
Moderator Emerita

Re: Construction/Building Loan

The land value will count toward your down payment. Speak to the LO that is handling your construction perm loan for details. 

Message 10 of 10
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.