Replies

1. 
   parrothead | Jul 14, 2003 10:25pm | #1

   Hello Davo, When I had my construction loan about 7 years ago, I just went through my local bank. My home also took about 6 months to complete. The way that my loan worked was,

   there were no points as it was a short term loan.

   I paid intrest on the money that I had actually used not on the entire amount of the loan. 

   My arrangement with the builder was 1/3 payment when the house was under roof, 1/3 when it was bricked and finish trim started and the last 1/3 when complete. In my case I paid 1/3 after about a month and a half and then another 1/3 about 4 months into the project. I never had to pay the final 1/3 of the construction loan, I just got a regular mortage at the end and paid the builder then. The interest on 1/3 for 4 months and the other 1/3 for 2 months was not that bad.

   Mike 

   We are the people our parents warned us about. J. Buffett
2. 
   Annapo | Jul 14, 2003 10:41pm | #2

   Hi Davo,

   Are you looking to build for yourself or as a spec?

1. 
   Davo304 | Jul 15, 2003 08:48am | #3

   Will be building for myself. When completed, will sell my current house I am now living in.

   Davo

1. 
   fdampier5 | Jul 15, 2003 11:19am | #4

   Davo,

    what you need to do is get a bridge loan..

     that is where you take the equity from your house and leverage it into the new home.   The banks are comfortable with this kind of deal and thus likely to approve it..  If you go in with plans and paper it's a much harder deal untill they have some experiance with you..Too often in the banks experiance they wind up with some half finished deal with the owner bailing because he got tired of the work involved..

          By the way..  don't focus on  interest rates, costs, etc..  the first one you do with a bank is the scariest for them.. they really don't know you and  thus their risk is much higher than it appears.

        That does not relieve you of the need for great documentation.. cost projections with competetive bids for all sub contracts (even if you intend to do the work yourself), a schedule to show the bank as to when they can expect the building ready to occupy   (and thus close so they get their money)   a disbursments schedule so they can see when funds will be needed how much and what documentation they can put into their folders to justify that payment.  In addition the bank will need to see how you intend to pay yourself while working on the house..   We all need money to eat and pay bills.. they don't want to see that coming out of the construction loan..

     Frankly if you don't have all that ready on your first visit along with blueprints (they'll want a copy) and sale records for the land  (you wouldn't be the first person to want to build on land you don't yet own0...you won't be able to get to first base..

        Now here's  the really big question..  Why aren't you dealing with your own bank on this?   You do have a relationship with a banker don't you?  Tell me you don't have your accounts all over town.  car loan here, home loan over there etc..

     Without that relationship you are in for a tough battle.. from a banks perspective construction loans are very hard.. theyalmost always seem to have bumps in the road..  a permit that was late which caused the delay of the...  or a sub who failed to perform etc..   Think of everything you'd want to know if it was you lending the money to a stranger.. That's what you'll need..

1. 
   Davo304 | Jul 17, 2003 09:28am | #5

   Frenchy,

   Thanks so much for the insight.

   I don't own that city lot yet, cause I want to make sure I will qualify for a loan first. If I can't qualify for the loan, I certainly don't want to buy the property and let it sit.

   As for "eating" money...you hit the nail on the head...yeah, I do want to take a portion of the loan to pay for my other expenses while I build this new home. Hell, I can't be building a new home and at the same time remodeling someone elses home...not unless I'm twins. 

   Looks like two red flags just got raised; huh? Looks like I'm already gonna be rejected.

   As for dealing with banks, the bank I usually dealt with  for the past 20 years got "bought out" a couple of years ago...all the employees that I dealt with for loans and whatnot got canned. All new faces. Since that time, I started dealing with another local bank, but not much "history" there; if you know what I mean....hence I'm looking for best deal wherever...cause for most part, I'm already a stranger to local bankers.

   Bottom line, I want to build a house that is approx 1900 square feet that I believe I can build for no more than $60 per S.F.   Land is approx $30,000, and is already set up with sewer, city water, elec, gas lines. Less than 30 feet from connection point for these utilities.  Hence, when completed, I would have approx $144 K tied up in this build. Figure I would ask for $160 K to tie me over for my "eatin" money; so to speak. You don't think this would fly, huh?

   BTW, my current house is paid off...no liens or anything. House and property is only worth around $80 K. Soooo, I got $80 K in equity , and would like to build a new home in an older, already developed neighborhood ( homes in this region commonly sell between $140 K to $180 K) Home loan would be for $160 K, but I feel I could certainly turn right around and sell it for more when completed. You think a lender would be willing to take a chance on that or not? 

   Davo

1. 
   Handydan | Jul 17, 2003 11:14am | #6

   From My point of view, it sounds as though there is not enough profit to cover the risk involved, but I am not a builder, and a little conservative.  Not much cost to ask, and find out what the bank thinks.  I would bet they will want to lien your existing home, for at least a little security for them.  Have you considered working on it after hours, so you can keep at least some remodeling income coming in.  Yes its a drag, but if you want to get ahead, hard work and long hours can be a way.  Just some thoughts from me, Good Luck, whatever you do.

   Dan

2. 
   fdampier5 | Jul 17, 2003 03:57pm | #7

   Davo,

    that is what a bridge loan is..  it will bridge you from one house to the next.  with $80,000 net equity you should have no trouble getting what you seek.  just do as I said.. document everything..  go in with a briefcase full of paperwork.. W2's, currant property appraisel, (or property tax statement) written propsal schedule, budgets, (including estimates)  etc.

      Have a description of the legal for the property you seek (not just the address)     In your request clearly state that you will be working 100% of your time on the new house.. and Pay yourself a fair wage,  don't think that the bank will appreciate you cutting corners to get everything done and under budget..

         Bring in several letters of recommendation from clients you've worked for in the past, along with phone numbers and perhaps pictures of your work..

     If you have everything organized I fail to see why a bank won't go along with your proposal..  Start with your bank first.. your currant one and past one next..

     Do not shop rates at this point.. get the deal,... then become  a wheeler dealer.  Once you have a couple of these under your belt, then you can put the squeeze on to  get better terms for yourself.. Right now the best deal is a bank that will take a chance on an idea of yours..

3. 
   MikeCallahan | Jul 18, 2003 03:19am | #8

   Recently I jumped through all the hoops for a construction loan. Luckily we knew someone at the bank who walked us through the whole process.

   You need to pay yourself a good wage, even though you might not spend it all. In case you break your neck, the bank will want to make sure there is enough money to pay a GC to finish the job.

   You will receive a check list that helps you to itemize every stick and tile for the job. Study your plans and do a complete take off for every last block. Submit your take off to your lumber yard and get a price. It sounds like a lot of work and it is.

   Get competing bids from all your subs and use the highest bids for your estimate. There are things you may forget to account for, so the higher bids will help absorb some of the overhead. You may be able to build it for 160K, but if all the work is subbed out, the price could be much higher. Plan on borrowing as much money as you can qualify for and if you don't need your last draw then that is just a bonus.

   Have a resume that shows photos of your work and include numerous references.

   If you think coming up with plans, permits and a loan is a lot of work , Wait until you start building. That is REALLY a lot of work.

   Good Luck

   Mike Callahan

   Dogwood Builders

   Lake Tahoe

   We may be slow, But we're expensive.
1. 
   Davo304 | Jul 19, 2003 07:54am | #9

   Thank you one and all for your insights. I am still contemplating a few things, but will probably move forward. will let you know how things turn out later.

   Thanks again

   Davo

1. 
   toolnut | Jul 20, 2003 05:54am | #10

   To help keep groceries on the table include in your budget a line item called "Supervision".   This will help get you funds for your time through construction.  Regardless if you frame it or sub it out. 

   If have a line item called "Profit" (I don't think you are planning this, but just in case) do not expect to see any of that "profit" until the house is complete.  

   If you plan to go in and talk to your banker with a package of info include the "will serve" letters from the utilities.   It is an existing neighborhood and they are there as you said, so it should be very simple to obtain.    Include: Water and Sewer, Electric, Telephone, Gas (if applicable), Cable (if applicable.   They will be simple letters on the utility letterhead, addressed to you, referencing the address and states XYZ will provide "x".   It will be on the bank's Check List and will demonstrate a little more due diligence on your part.

   Do you know the history of the lot you are considering?  Has it always been vacant? Did it have a mom and pop gas station on it 40 years ago?

   Try to go in with as complete a set of plans as you can.

   Do you have insurance already, builder's risk, general liability, etc?  Couldn't hurt to have that too.

   All for now,  I'll keep thinking.

1. 
   Davo304 | Jul 28, 2003 08:10am | #11

   Bill,

   Thank you for the insights. Got to remember "supervision".

   As for the building lot, I've known this lot all my life...never been built on before...nothing wrong with ground, just never developed, period.

   Thanks for insights.

   Davo