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Build-it-yourself (self-build) construction loans: USDA/FHA?

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Frequent Contributor

Build-it-yourself (self-build) construction loans: USDA/FHA?

Has anyone built their own house (by which I mean you provided most of the labor and acted as GC yourself NOT that you had a builder construct for you)?

 

I live in a rural area and want to buy a piece of land and build my own house. I'll act as my own general contractor and do most of the work myself (along with my brother and a friend), sub-contracting out a few bits (like foundation pouring etc). I know FHA and USDA both do construction loans, but does anyone know if you have to use an approved builder or if they'll allow "self-builds"? Are there limits on size (I want a modest 3 bed not a mansion!).Can you roll land purchase and construction into one loan or would I need to buy the land and then get the contruction loan?

 

Looking at regular contruction to permanent loans I'd need a middle score above 700 and a 25% downpayment and I'm just not there yet.

 

If anyone has taken this route, I'd love to know. I just really hate the new construction I see around my town (there are 4 new houses being built across from my friend's house and they're ugly and I don't think much of the workmanship)!

 

 


Starting Score: 2/2013 EQ 535
Current Score My Fico: 6/17 EQ 745| EX 740 | TU 775
Message 1 of 9
8 REPLIES 8
Frequent Contributor

Re: Build-it-yourself (self-build) construction loans: USDA/FHA?

I have built, and am on my third round of new house building now Smiley Happy  but.... I decided to go through an established "custom" homje builder.   Many reasons why....

 

I designed the house, from top to bottom.... inside and out!!  they took MY vision, drew it up... and it becomes reality Smiley Happy  Like you, I hate the "cookie cutter" homes that you see everywhere... and I wanted mine different and MINE.

 

Word of warning... as I have friends who went the route you're talking.  Construction loans can be tricky.  Regardless of the high credit score and down payment requirements, many lending institutions who do construction to perm loan will require you to put a full plan together, put together timelines, and the will ONLY pay you out when you hit these milestones!!!!  If you're off on your estimates, or underestimate the costs, you don't get any more money until you hit the milestone complete.  Make darn well sure you KNOW what you're getting into.

 

Also, if you're going to act as your own GC.... make sure you have damn good insurance, and keep your subs happy so you can guard against sub-contractor liens, etc in the event you run out of $$ and can't pay!!  Personally I think it's a HUGE RISK that you don't need to take on when there are options out there.

 

Most GOOD and reputable custom builders will work with you, on your land, and finance the project until you close with minimal money down (I'm building $460,000 on $30,000 down with builder).


Current FICO Scores: EQ749; TU732; EX733
Message 2 of 9
Senior Contributor

Re: Build-it-yourself (self-build) construction loans: USDA/FHA?

Most lenders will not finance a new constrcution deal where the homeowner is the general contractor unless that homeowner has a successful track record. To get the lender to say yes, an experienced general contractor has to be hired.

 

I had to demonstrate/prove my engineering education, training and background in order to convince the lender to fund my deals.

Message 3 of 9
Valued Contributor

Re: Build-it-yourself (self-build) construction loans: USDA/FHA?

Kinda sucks it's this way now.  My dad built his own house essentially the way the OP is proposing.  Been close to 30 years so certainly a different landscape  He worked inteh coal mines so certainly not rich.  Very modest two story that didn't even have central air/heat. 

Message 4 of 9
Frequent Contributor

Re: Build-it-yourself (self-build) construction loans: USDA/FHA?

Thanks all!I appreciate your stories and advice.

 

I did consider finding a local builder to just use my plans, but I really don't want to pay the mark-up on materials etc. Also, my BF's house is new construction (about 4 years old) and I have issues with the quality of some of the work.

 

I did some more research and was basically finding a lot of the same issues - a conventional lender will want a proven GC, will only release money at specific stages etc etc and will require a significant downpayment (sometimes owning the land is enough to show equity).

 

I'm tempted to just take a few years and do it bit by bit as I save up - so save $X and have the foundation poured and plumbing lines etc set, then save for another few months and pay for the materials to frame and so on. It'll take a long time that way, but in the end I'd be mortgage free!

 

There are some "lenders" that do builder-owner loans, but then you have to find a lender to the mortgage loan. You also need a score above 700 and 25% down or own the land etc.

 

I agree with boomhower - it sucks that this is kinda difficult to do now unless you have some nice cash reserves that mean you don't need a loan. Of course, lenders have to portect themselves so I get it, but still . . . .

 

I did see that USDA and FHA have major hoops to jump through and you have to hire a GC etc (so basically can't do the work yourself). Oh well.

 

 


Starting Score: 2/2013 EQ 535
Current Score My Fico: 6/17 EQ 745| EX 740 | TU 775
Message 5 of 9
Frequent Contributor

Re: Build-it-yourself (self-build) construction loans: USDA/FHA?

Smiley Happy  LOVE the idea of building a home little by little... and in the end having no mortgage Smiley Happy  more power to you man if you can do it!!!!!

 

Three houses built... and I've been through the hoops lol.... there's good, bad and REALLY ugly in the home building arena.  Finding a SOLID contractor/builder is the key.  There are some out there.  Unfortunately, most mass-produced homes are done quickly and cheaply... and you end up with problems.   Now... there will ALWAYS be SOME issues with newly constructed homes...so don't kid yourself.  Depending on the land, you may have serious shifting, leaving cracks in drywall, or doorwells that need to be adjusted.  Those cannot be avoided....and have little to do with the builder or his contractors.

 

Now... if you're talking BIG issues, like windows, insulation, framing, or general materials..... best bet is to go see where the builder LIVES himself!!!  If he lives in a house built by HIS subs... or if he lives along-side his customers....you can pretty  much bet he builds a quality product. Smiley Happy   I've built with the worst... and built with the best... fortunately the "worst" was my first experience and I learned a LOT!!!!!  

 

Tip for not over-paying....price the job out yourself, and THEN meet with a builder!!!  Trust me... they're ALL willing to negotiate if you come in with a pre-set spending limit, a plan, and a strong will to walk away (or at least can fake it well Smiley Happy )..... I'm on builder #3 for this one house... first one built a nice home, but I had reservations about his financial stability.  #2 builds a beautiful home, with an incredible reputation... but he priced himself WAY out of the league.  When I said "I'm done" only then did his story change it's AMAZING at what costs he could pull out Smiley Happy   ...but by that time I had already started working with #3... awesome builder, beautiful quality home, lives in a house his company built, and his neighbors are his customers!  (I will be as well)... Told him the budget, gave him the plan... and first shot out the door he came in just $2500 more than my budget, with committment to get it where I needed.

 

If you're not going to do it yourself, bit by bit, then take the time and find someone you trust.... sounds like you have time Smiley Happy  good luck & email me direct if you've got questions!


Current FICO Scores: EQ749; TU732; EX733
Message 6 of 9
Frequent Contributor

Re: Build-it-yourself (self-build) construction loans: USDA/FHA?

Thanks Barneygirl! This was super helpful.

 

I've got the design and now I'm working on blueprints and pricing. Eventually I'll have figured out how much each part will cost in terms of materials and which jobs I'll need to subcontract out. Obviously the foundation work is an area I'm not likely to tackle, but framing, electrical, plumbing, roofing, drywalling etc can all be handled by me, the BF, his dad (who has a GC license) and I may import my brother (electrician) and cousin (contractor/builder) from the UK for a month to help out! The problem with importing the help is that if I do plan to build stage by stage as I can afford it, I'd probably never be in a position to bring them in!

 

But you're right - I have time. I haven't even found the land yet. My first step is to really get the design and blueprints as far as I can take them without an architect and then price materials so I have a general sense of how much it'll cost. Those who've done self-builds have said they spent anywhere from $20 to $200 per square foot so not very helpful to me!

 

Great advice about checking out where the builder lives and having a good sense of how much it would cost before getting estimates.

 

It may take me a while to get the ball rolling and if I do decide to build stage by stage as money allows, it will take a while, but I think it'll be a great adventure (although I know that 95% of the time I'll probably hate myself and everyone around me)! But what a sense of accomplishment I'll have!

 

 

 

 


Starting Score: 2/2013 EQ 535
Current Score My Fico: 6/17 EQ 745| EX 740 | TU 775
Message 7 of 9
Moderator Emerita

Re: Build-it-yourself (self-build) construction loans: USDA/FHA?

Check with the building department. Usually the skilled trades require a license and permit for the job even if you are the GC. I am talking about plumbing - electrical - HVAC - etc.

 

If you build without a permit and/or without the properly licensed subs this creates serious issues for value of the property down the road. In my area the building department can force you to remove and correct and charge a high fee per diem ($1000 per day is the typical fine here)  if not done with a permit. Code enforcement is a big business for a lot of counties and towns today. Think revenue generating - as well as protection for 'heath and safety'.

 

I am saying this:  it is okay to be your own GC and build for cash, but don't skimp on the proper paperwork or licensed sub contractors for skilled trades. Building codes are different in different states much less in different countries.

 

Message 8 of 9
Frequent Contributor

Re: Build-it-yourself (self-build) construction loans: USDA/FHA?

Thanks for this. The definitely plan on checking with the building office to see what needs to be done under a licensed contractor and what I can do myself, but it's a point very well taken!


Starting Score: 2/2013 EQ 535
Current Score My Fico: 6/17 EQ 745| EX 740 | TU 775
Message 9 of 9