Construction Loans (owner builder)

Discussion in 'Homesteading Questions' started by Lizza, Jul 16, 2006.

  1. Lizza

    Lizza Well-Known Member Supporter

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    We've been searching for a construction loan to build a house. We've been told that they can't finance owner builders and will only finance if we have a house builder build our house. We were also told that we have to have the construction done in one year.

    We are hoping we have enough equity to take out the equity and not get a construction loan but if it doesn't work out is there someone who finances owner builds? Anyone have personal experience doing owner build financing?

    Thank You!!!
     
  2. frazzlehead

    frazzlehead AppleJackCreek Supporter

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    I have an owner build mortgage through a provincial treasury branch - www.atb.com. Won't help you where you are, but you may be able to take the information from this website to one of your lending institutions and see if they have anything similar.

    I had to do up a pile of documentation ahead of time, lots of specs and drawings and pictures of what the house would be like, and how everything would be done.

    I paid no mortgage payments for one year. Interest accumulated on the draws, but I didn't have to make any monthly payments at all. They came out and inspected to see if I was done 'enough' to get the next draw, and when I hit my one year (just this past week) they came and looked to see what is done so far (not everything!) and decided how much I can have of the last draw (the lawyer will hold back a portion until it is all done).

    You do have to have a lot of operating capital as you don't get much up front money. For example, I have a 150K mortgage, but I've got approximately 50K on various lines of credit etc that serve to pay the bills until the full mortgage funds are given to me and it is all finished and just paying a regular mortgage.

    PM me if you'd like more info, sorry I can't help you with anything specific to your locaiton.
     

  3. heather

    heather Well-Known Member

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    Yes, we did ours through our credit union.
    If you don't currently belong to a credit union, you may be eligible.
    Check the requirements at your local ones.
    Best wishes!
     
  4. frugalville

    frugalville Well-Known Member

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    IF you can swing it, use equity. The hurdles to a contstruction loan, especially to a self built home are numerous.

    Are you actually building it yourself, or just being a GC ?
    Have you ever done this before ?

    There are alot of pitfalls for the 1st time builder. I'm not saying don't try it, but be prepared. It will take longer than you think. IT will cost more than you think. Heck, wire has doubled in cost since last year.

    You can also get better prices with subs if you offer them a cash price vs a check after you have proven to the bank that they are a quality, insured, trusted outfit, who doesn't mind taking up alot of their time to go to the bank and prove so. Then after they come to check the work, then take the time to approve the draw, then you go get checks made out to said subs.

    If you do this, know what you are doing before you do it.

    Unless you really like banks, red tape, lots of meetings, driving, waiting, phone calls, someone else telling you what you can and can't do then use equity.

    Also if you are building outside the box.. ie. Non-mainstream building methods (anything that is not a stick built, vinyl sided mcMonster) you will really have a heck of a time depending on the bank.

    We sold and used equity from our 1st home and took out a lot/land loan- lived onsite in our RV, then flipped it into a mortgage upon passing final inspections. This was after our fist meeting with the bank and they said you want to build a 'log what ?? Yourself ? And you have no building experience?'

    Best of luck..
     
  5. Lizza

    Lizza Well-Known Member Supporter

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    Thanks for the help.

    I will definetly check out our credit union.

    My husband is a general contractor but can't build his own house according to the loan officer we talked to at a mortgage company. We might be able to put his parents as the builder but they don't actually build houses and he wasn't sure they would make it through underwriting (my husband and parents build swimming pools and do concrete work).

    We will probably build parts ourselves and sub some stuff.

    I'm not too sure what to do about building outside the box. The mortgage company said, no way, to financing anything but a "normal house" and I talked with our real estate friend and she said if we ever plan on selling only build a "normal house". I really don't know if we plan on selling or not but I don't really want to shoot myself in the foot if we do decide to sell down the road.

    Thanks again!
     
  6. tricklecreek

    tricklecreek Well-Known Member

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    it really depends on the bank, smaller local ones seem to have more lattitude. my brother is on the 4th year of a construction loan and we both grew up in the buisness. he's a good example of why the lenders are hesitant. he'll be done this year if his wife doesn't kill him ;) tc
     
  7. halfpint

    halfpint Well-Known Member Supporter

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    We built our own house and none of the larger banks nor our credit union would give us a construction loan. However we found several smaller banks that were more than willing, especially since we owned the land and had almost half of the cost of the building saved up. The way it worked was we were preapproved for the loan, howevever had to build to a certain point before we could get any money - then they would come out and 'appraise' the property (not a typical appraisal but enough to look and see how much was done, and what they thought it was worth) and release the amount of funds that they thought the property was worth. Then after using up that money and getting more of the structure built, would come and appraise again. We were also required to finish within one year.

    Building yourself is a big hassle, the contractors do not feel obliged to you as they know you will probably never build again. Since your husband is in construction this may not be as much of a problem to you. We had some friends in construction who gave us a bunch of tips as well as contacts. We found some unusual incentives, such as finding out that our concrete man would come in a pinch knowing we would give him a whole ham or turkey. I never did find anything to motivate our brick layer though - he was our biggest problem contractor. We did this 20 years ago and I don't think I would try building again - but I don't really need to we're really happy with our home.
    Dawn
     
  8. Dubai Vol

    Dubai Vol Well-Known Member

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    I'll tell you what a friend of mine did: he got loads of credit cards, took cash advances on them as needed to pay the subs (as above, if you pay cash and don't have to get them approved by a bank, they can do the job much cheaper, by using perfectly competent but lower-paid workers instead of expensive "masters" and "journeymen" that the bank requires.)

    Long story short, he built his house for $20K, all up to code, then went to the bank, had it inspected as being up to code, got it appraised at $40K, took out a loan on the value of the house, and paid off the credit cards. He only had to carry the credit card interest for a few months because he wasn't doing the work himself, but hiring subs, so the time-frame was normal for construction.

    He's a very creative guy.
     
  9. wy_white_wolf

    wy_white_wolf Just howling at the moon

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    I guess this all depends on how you work things out with the bank. When we did my brothers home, we made a deal with the bank to submit all the bills on a weekly basis to the loan officer. He would cut individual checks to pay each of the subs and material suppliers separately. My bro would give me enough cash to cover my expenses (gas) and just turn it in as misc. contract labor. The loan officer never had a problem and actually liked the arrangement as he could follow along on the progress of the house. My bro did have to pay any interest on the loan at the end of every month. The interest was minimal at first since it was only on the amount he had already cut checks for.
     
  10. AngieM2

    AngieM2 Big Front Porch advocate

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    http://www.ownerbuildernetwork.com/

    This is who a recent co-worker of mine is using. And she's planning on much of the finishing work herself. They help find the loan, etc.

    And you'll get the discounts that contractors get because of mass purchasing...

    Check it out.

    Angie
     
  11. Ramblin Wreck

    Ramblin Wreck Well-Known Member Supporter

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    Twice I've built homes as an owner/builder and used local banks. Each time I've set up a checking account with the bank providing the loan, and the loan officers would transfer funding into the checking accounts upon request/submission of invoices. I also used personal funds for part of the construction. Given the personal funding and collateralization with the land/building lot, the banks were secured. Good luck.
     
  12. canfossi

    canfossi Well-Known Member

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    Why don't you make a loan and get things started and then save up for the rest by putting money in a savings account, pay as you go. There sure are some very good ideas here. There's more than on way to skin a cat. Good luck, Chris
     
  13. frugalville

    frugalville Well-Known Member

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    What is your equity situation ? Do you live in a house you own now ? Do you own land that you are going to be building on ? Is it Land or 'a lot' ?

    Only a bank would tell someone who is a GC that they can't build their own home.

    Find a different bank.. They all have money to lend that they don't actually have.

    If you have 2 properties, do you plan on holding and living in the first while you build the second ? If you borrow max equity, are you prepared to be stuck with 2 properties if the 1st doesn't sell...

    If your husband is a GC, maybe he knows subs that will 'float/barter' with him.