Will banks give you a personal loan to build a house a little at a time?

Discussion in 'Homesteading Questions' started by r.h. in okla., Mar 28, 2007.

  1. I'm thinking about building a new home a little at a time and do most of the work myself. I don't want to take out a 20-30 year loan. Only God knows what all will happen in the next 30 years! Plus, I would be up in my 70's when I get it all paid off. So I want to build the house in stages but some stages might take a good chunk of money that might be hard to raise in a short amount of time.

    Basically what I want to do is start out with the foundation which I might be able to raise the money without a loan. Then borrow money to build the frame and roof. While paying off that short term loan, any extra money I receive will go to finish building the house.

    I think with proper planning I could almost do about 85 - 90 percent of all the labor involved.
  2. Stinkfinger

    Stinkfinger Guest

    Depends on a few factors, mainly if your bank does construction loans, some don't. If your bank does and your credit is good...... well, if your credit is excellent, then they should make a construction loan. But I don't think they will consider an incremental loan for the varying stages of the construction.

    But if you meet the criteria of having excellent credit, then borrow the full amount to build the home. Use enough money to get the house in the dry, pay the remaining funds you have against the balance.

    Just a thought......... good luck.

  3. mistletoad

    mistletoad Well-Known Member Supporter

    Apr 16, 2003
    Southern Maryland
    I don't think banks ask why you are taking out a personal loan as they are unsecured. A line of credit (or revolving loan) might be a better idea than applying for a new loan every few years.
  4. Dianol

    Dianol Well-Known Member

    Dec 29, 2006
    A personal unsecured loan will be in the range of 9% to 10% now depending on your credit score. A home loan will be in the range of 5.5% to 6.5% depending on same.

    You can borrow what you need to get the home in the dry and do that on a 10 year or 15 year note if you can swing it. This will get you in the 6% range. Problem will be the bank will want you to complete it, and close on it. They don't want an unfinished home sitting out there which they own part of, and might have to re-sell it if you default. They would then have to hire a contractor to complete the home before they could re-sell it. For them, that hassle factor is huge.

    Another option would be to take a secured loan on the land. Use that money to build your home. Lots of options. If you have a good relationship with a local bank, talk to the loan manager (not loan officer) about options.

    Good luck with your home building endeavor,

  5. Ken Scharabok

    Ken Scharabok In Remembrance

    May 11, 2002
    Best thing to do is likely to go in and talk to come loan officers.

    On a line of credit essentially you still have to put of some collateral. I have one on which they just placed a lien against the farm in general. Rolled over each year with interested fixed for a year at a time. I withdraw and deposit as I need to.

    Even if land is free and clear using it for collateral would still be iffy as noted above.
  6. You can borrow what you need to get the home in the dry and do that on a 10 year or 15 year note if you can swing it. This will get you in the 6% range. Problem will be the bank will want you to complete it, and close on it. They don't want an unfinished home sitting out there which they own part of, and might have to re-sell it if you default. They would then have to hire a contractor to complete the home before they could re-sell it. For them, that hassle factor is huge.

    Good luck with your home building endeavor,


    This is one reason why I don't want to take a home loan out. I know then I would be on a deadline and then wouldn't be able to make that deadline and would have to hire most of the work to be done. Which in turn will cost me even more.

    I like the ideal of a revolving loan. I could borrow money against the old shack I live in now and use it for the stages of construction. If they will loan it to me for that purpose. I've been told that they will do everything possible to get you to sign a long term home loan. Which will be too risky for me.
  7. Shadow

    Shadow Well-Known Member

    Jan 10, 2006
    To get a consturction loan you are going to have to have a set of plans that are conventional and apporved by the state building officaials'
    To borrow on just the land, only expect to borrow about half the value of the land.
    If you have another home, rental borrow against it.
    When we bought unimproved land we always borrowed against property with a home, better rates and no problems.
    Rates are always lower on your home as that is the last thing you would let go of in bad times, second lowest is rental property, it does provide a income and you would hold on as long as you possibly could in bad times, third is unimproved property, vacant land, no income bad times comes along it is first to go. Thats just how the banks look at it.
    Can you borrow and build in stages probably not. If you do the interest rates will be highest they charge.
  8. Junkmanme

    Junkmanme Well-Known Member

    Dec 16, 2006
    A friend of mine who has a VERY SECURE, very good paying UNION job and owns more than one piece of real estate, borrowed $25,000.00 a few years ago on an unsecured basis. (a 6-month note, as I recall)

    The "Bank" that he borrowed it from HAD BEEN a Savings and Loan in prior years, but converted to a full-fledged Bank.

    The Loan Officer ask him why he wanted to borrow the money. His reply: "I'm going to take a trip to Las Vegas, Nevada, and do some gambling." They made him the loan.

    He promptly paid off his house mortgage with the money (same Bank). He paid off the note in the necessary 6 months.

    The Loan Officer later asked him why he didn't tell him that he was going to use the loan to pay off his Mortgage. His Reply: "If I told you that instead of saying that I was going gambling, would you have loaned me the money?"
    Banker: "Probably not."
    My Friend: "Well, that's what I thought."

    Bankers......go figure!

    If you don't need the money, they'll loan it to you. Don't bother if you need it for a worthwhile endeavor.

    The last time that I borrowed my OWN money from a Bank, they charged me 2%. It's probably double that now!

    Bankers and Lawyers are good people to stay away from! Very Unscrupulous folks.

    just my 2 centavos worth,
  9. Jan Doling

    Jan Doling Well-Known Member

    May 21, 2004
    Zone 9b
    I had to pay a couple of grand to a licensed contractor to act as a consultant in order to get a loan as an owner-builder. He basically collected the money and would answer questions over the phone. Otherwise, I would not have been given the construction loan.

    Also, there was a 9 month deadline with a hefty penalty due each month thereafter. My husband went to jail for domestic violence (he thought he had me over a barrel with the construction going on and did not count on the neighbors reporting him), so I had to pay the penalty and the mortgage while he lived on the property for 4 months doing no construction. Finally the judge awarded the marital home to the children and I (but we still couldn't get on the property because Dufus actually believed he and his girlfriend could stay in the garage apartment while I paid all the utilities and mg. and penalty fees. We had to go back to the judge and have him tell Dufus that "marital home" meant the entire property, not just the house.) Then the kids and I lived in the garage apartment until the house was finished 6 months after that.

    The lender has strict rules...one of which is that they did not want to give me the first draw until after we had completed the work for that phase. They said I should be able to buy the supplies and pay for labor from another source (my piggybank maybe?) and they would reimburse me afterwards.

    So make sure you talk to the lender and get as many details in writing as you can. The mortgage broker merely located the lender for me and did the paper work. He answered most of my questions incorrectly. Talk to the lender directly.
  10. mtman

    mtman Well-Known Member

    Sep 2, 2004
    when we were rebuilding we saved a few months then did some work then saved again and so on 2 years latter we are done and took out no loans were all paid for
  11. HeatherDriskill

    HeatherDriskill Well-Known Member

    Jun 28, 2005
    They are supposed to ask! Due to the Patriot Act, OFAC, BSA, etc., banks and credit unions are required to have a "purpose" for the money. Of course, you could be lying but they have to prove due diligence that they are funding drugs or WMDs.
  12. HeatherDriskill

    HeatherDriskill Well-Known Member

    Jun 28, 2005
    Thanks. I'm a loan officer. I only approve loans that people have a good chance of being able to pay back. Honestly, if they have a great job and great credit, I probably don't care what the heck they do with the money but I still have to ask. I am very scrupulous, thank you. I try very hard to help people when they need it and at the same time be smart enough to tell someone no when it's in their best interest. I have found that most people who don't like bankers are people who have been turned down by bankers. Normally the people who have been turned down are the people who have no business borrowing money in the first place.
  13. So Heatherdriskill, what kind of a loan should I apply for so that I could build my new home a little bit at a time?

    Could I take out a home improvement loan but instead use the money to get started on the new house? Or would the banker come out to see the progress?
  14. centexguy

    centexguy Well-Known Member

    Nov 25, 2004
    I had a similar idea to build a home in stages and pay for it as I go, but I have changed my thinking somewhat. I can understand why banks are very reluctant to loan money to owner/builders. The last thing they want to deal with is having to try to recoupe their investment from a house with uneven floors out of square walls poorly installed wiring/plumbing etc. You might be a master of all trades and do a super job but how will they know this in advance. So, Like someone mentioned earlier, I am going to pay a general contractor I know well to oversee the construction use his license bond and handle the paperwork.
    I will pay subcontractors to get the home dried in with concrete or block walls. The design will be very basic. The plans I show the bank will show a very open interior and minimal fixtures, stained concrete floors, few cabinets etc. just enough to make the bank accept it. I have some professional experience doing concrete work and still have friends who run small-med size companies. One thing I would advise anyone building a home with concrete work is if you are not a concrete man you need to hire one with a good crew. I will pay my friend a good price to do it right. I will do most of the inside framing, wiring, plumbing... After to bank accepts the building as complete I can pay off the loan as quickly as possible and make improvments as money allows and good deals on materials- fixtures are found. Dont wait too long, everthing is going up in price daily. Might be better off to take out a small mortgage and get er done. Your house will probably be worth twice what you borrow if you are careful and do most of the work yourself. Goodluck . :baby04:
  15. Hoop

    Hoop Well-Known Member

    Jan 1, 2003
    Northern Wisconsin
    Lots of factors at play. Credit rating. Income history. Other indebtedness. Is land paid for & what is its worth? The banker said it best... "if one has a great job & great credit, they don't care what you use the money for".

    Generally, banks do NOT like to get involved in long term owner/builder projects. Mainly because they have no way of knowing your work ethic and your skills as a builder.
    Many banks flat out refuse to loan money for building projects unless a licensed general contractor is used.

    Most of the owner/builders I know borrowed some money during the course of their building, whether it be from a bank, piling it on their credit cards or borrowing from a relative. Building a house by yourself to completion is a major feat. Building a house by yourself to completion without any sort of a loan is almost impossible.

    Fill out a loan application at your local bank. The worst thing they can say is no.