I’m a carpenter trying to build a small home for myself, on a very tight budget. My problems unfortunately aren’t of the building type, but of the financing type. I wanted to build this year, have a lot in mind, some plans done as well as some pricing. Local banks all want 20% on construction loans, some national will go as low as 10, most don’t like “owner builders”. I’ve been looking around online to try and find some way to make this happen this year, and I’ve come up with an idea. I can get an unsecured personal loan from a big national bank I do business with surprisingly easily at even more surprisingly good terms (5.99%). If I take this loan, my savings, and maybe a small loan from a relative I can buy the lot (probably at a better cash price), and partially build this house. I’m talking groundwork, foundation, frame, weathertight, insulated, maybe some mechanicals. What kind of financing would I need to get to pay of the debts created and finish the rest. If I had it to the point to get an occupancy permit should I look at getting some sort of home equity loan? (BTW is there code minimum requirements for occupancy or is it a town thing) I know most have heard of people building on credit cards and refinancing in the end, this is basically the same thing only on fixed terms.
This is just an idea, but is it a bad one?
Replies
It sounds risky to me because you seem to be implying that you have to borrow almost 100% and still are thinking about only getting it so far and not completely finished.
Try marflax.com for an owner builder friendly site. Tell them exactly what you've told us here and they'll give you an honest assessment of whether you have a solid plan or not.
The thing that make it so shaky for me is that you are a carpenter and quite often the carpenters wages vary too much and it's easy to lose it all if you get too far into a deal with such a shaky foundation to begin with.
You might be better off looking for a HUD fixer and let the government lend you some money to fix it.
Bob's next test date: 12/10/07
egdc
Read this thread. My response is #2.
http://forums.taunton.com/tp-breaktime/messages?msg=105465.1
I don't think you have enough money. You should have at least 20% in cash.
Your payment should not be greater than 25-27% of your income.
Best advise a banker (old style) ever gave me was NO, you don't have enough of your own money.
I didn't like it at the time, but it was the truth.
If you read the thread you sill see that there are alot of morgage lenders (new style bankers) who will get you into a deal that you wish you didn't have.
There are laws of nature (if you jump off a building you will hit the ground) and financial laws. Violate them at your own risk.
I would love to build a new energy efficient house too. I own my home free and clear and I could scrape together some cash, but I don't think I have enough capital to build a house.
Rich
thanks for the responses..
Let me give you a little more info on myself, I am self employed, so yes my wages do vary, but my wife has a stable decent paying job and we have a low DTI. The biggest reasons I want to build now are I currently rent and rent is going higher, building materials (lumber, ply) are surprising low right now and I think they will be significantly higher next year with plants decreasing production, interest rates are low, and I want it now :) And I agree, I don't like building with less than 20% down either, but I have close (obviously close doesn't count on a mortgage) and with myself doing most of the labor involved I will have much greater than 20% in the end value. I also have been looking for "fixers" in my area for almost a year. Everything I have found has either been way overpriced in mine and my realtors opinion and we have both been surprised when they have almost all sold. I did have one I was going to move on, went on the market on a friday, I looked at it monday afternoon, was under contract monday night. So yes they are out there, but even with this one which was far away the best deal I have found I would have been into it more than the cost for me to build new. I know I'm probably ranting, I'm just a little frustrated.
you can take what i know and put it in a thimble,but heres what i learned when doing my house.if you want a lender anytime before the house is completely done,you have to bring them on board before ground is broke
i got 3/4 of the way done and as my sign on name indicates,ran out of money. no one would touch this deal.because they were unsure of who had done what and was all the bills paid etc.i told them that i had done everything but the basement and had recipts.sorry were not interested,if you had come to us before you began and we had put a 1st mortgage on the property we would have no problem.
i had to laugh i have bought property that was so bad you couldn't hardly stand to be in it,yeah we'll loan money on that!
do some checking on this before you get started.i have to say ,if i was paying 20% on a construction loan everything i save in doing it myself i would lose in interest payments. larry
if a man speaks in the forest,and there's not a woman to hear him,is he still wrong?
Good post Larry. Very good information. I've made that mistake myself. I ended up needing private financing which cost me a lot more than any high mortgage would have. Bob's next test date: 12/10/07
Dunno all the legalities in Maine, but when I built my house I did it without any loans and only 5K to start with, the property owner I bought the lot from gave me a 10 yr loan at prime rates, and built the house with cash as earned (working full time day job at the same time). Took 2 years to move in.
If not working 2 jobs at once, would probably need financing.
In the current economic climate, with loan payments from these unsecured loans on your debt load you will have a really hard time getting a loan, even if you have gotten a certificate of occupancy. You said in a later post that your debt to income is low, but it won't be if you get these loans to build your house.
I wouldn't do it.