Construction loan question

Thread starter #1

ugajay

Senior Member
I'm hoping to begin building our home here soon. After 10 months of dealing with insurance and renting I think we can finally get started. Long story short, house was taken by tornado, insurance tried to get over on me, and by the time I could begin building lumber prices were through the roof. But I think we can begin soon.

I have about $125k to put down on the house from the get go. Do I need to go ahead and get a construction loan now? Can I begin building with the money I have now and then get the loan? I just don't know enough about the process and was hoping to get some insight from someone who has gone through something similar.
 
Check with your finance company, bank, etc. You will need to show the estimated or actual amount of the house as well as plans, permits, etc. Since don't know how much the overall costs I can't tell if a financial institute would move forward, best to have the loan/funding secured prior to engaging in house construction. Interest only during building then converted to home mortgage after building is complete. If you are the builder all of this becomes a little more complex from the lender's view. Most construction loans require the building completed and a CO in a year.
 

JustUs4All

Slow Mod
Staff member
Great question. I can not help you with the details but you would do well to have financing in hand before you drop any of your 125k into the project. If things go south you could wind up with all of your money tied up in a bunch of foundation, lumber, plumbing & electric, and etc., that is not livable. That would be very bad news if it happened to me.
 
Temp to perm may be the loan you need. Wherever you live there are likely good mortgage lenders in your area, from Banks like Wells Fargo to Delta Credit Union to
the many mortgage bankers around like Certainteed Mtg, Direct Lenders LLC, ect..folks who lend their own money in house is who I would use.
 
Thread starter #5

ugajay

Senior Member
I appreciate the replies. So the total cost is estimated to be around $250k. I've known my builder my whole life, he lives a couple miles down the road and is good people. That's the only part I'm not worried about. I think my best bet is to go talk to my local bank and get a better idea from what they say. I don't want to mess myself up by doing something out of order. I just want to get started ASAP!!! Lol
 
I appreciate the replies. So the total cost is estimated to be around $250k. I've known my builder my whole life, he lives a couple miles down the road and is good people. That's the only part I'm not worried about. I think my best bet is to go talk to my local bank and get a better idea from what they say. I don't want to mess myself up by doing something out of order. I just want to get started ASAP!!! Lol
Get it going to lock in a low rate before they rise. Also be sure and use a detailed contract to build specifying all the fine details including type of shingles, insulation depth, ect..most builder supplied contracts I have seen in 27 years say the down pay,ent can be used by builder for whatever so he could buy a bass boat if he cared to, fyi.
 
Thread starter #7

ugajay

Senior Member
Get it going to lock in a low rate before they rise. Also be sure and use a detailed contract to build specifying all the fine details including type of shingles, insulation depth, ect..most builder supplied contracts I have seen in 27 years say the down pay,ent can be used by builder for whatever so he could buy a bass boat if he cared to, fyi.
I had a cousin run into that problem when he was building a house outside of calhoun a couple years ago. The contractor ended up in prison. And I'm off work tomorrow and plan on getting things moving forward. Thanks for the input
 
Go ahead and get the construction loan.

You don't have to draw any money until you need it.

When you need money you call the bank and schedule a draw inspection. They have a spreadsheet with all the items in the build listed and a corresponding % that each item contributes to 100%.

In my experience(100's of construction loans), banks like to have 6-8 draws per build. They are flexible though.

You can also spend your 125k and then call in for a draw and get them to inspect that the work was done but not deposit any money into your account until you are ready for it.

If the house appraises for 250k preconstruction and you get an 80% loan(200k) you might want to consider just getting a 50% loan for 125k because you may have to pay an origination fee based on the loan amount.

I would get enough of a loan to cover any overruns or changes.

This is a generic draw sheet off the web. draw sheet.png
 
I appreciate the replies. So the total cost is estimated to be around $250k. I've known my builder my whole life, he lives a couple miles down the road and is good people. That's the only part I'm not worried about. I think my best bet is to go talk to my local bank and get a better idea from what they say. I don't want to mess myself up by doing something out of order. I just want to get started ASAP!!! Lol
A word to the wise. I don't care how long you have known someone or their family. When it comes to several hundred thousand dollars you better get everything in "writing". AKA, contract, no hand shaking deals. Good luck on your new home
 
At the current "cost" of money you might want to finance as much as you can in a fixed rate mortgage and bury the rest in the back yard. Have a strong suspicion we are going to be looking at inflation like we haven't seen in a while. Just my .02 remember "Free" advice is typically worth exactly what you pay.
 

jimbo4116

Un-Retired Moderator
Staff member
I appreciate the replies. So the total cost is estimated to be around $250k. I've known my builder my whole life, he lives a couple miles down the road and is good people. That's the only part I'm not worried about. I think my best bet is to go talk to my local bank and get a better idea from what they say. I don't want to mess myself up by doing something out of order. I just want to get started ASAP!!! Lol
What happens if he gets hit by a truck. Get everything you do in writing. It protects you and it protects your friend if the truck hits you.
Don't leave your family to figure it out.

That said get all your ducks in a row. Talk with your banker about what you need to get the ball rolling.

My advice which is worth what you pay for it. Don't sink all your cash into the new home. It is nice to have a little nest egg for the unexpected.
 
Thread starter #12

ugajay

Senior Member
I'm definitely getting a written contract. My contractor said he wouldn't do it any other way. I didn't point that out. He said it protected both of us. Thanks for all the input. Definitely leaving myself a nest egg and not dumping everything into the house. You never know when something will come up.
 

gobbleinwoods

Keeper of the Magic Word
I'm definitely getting a written contract. My contractor said he wouldn't do it any other way. I didn't point that out. He said it protected both of us. Thanks for all the input. Definitely leaving myself a nest egg and not dumping everything into the house. You never know when something will come up.
I'd borrow all the bank would loan me and keep the cash in hand IN HAND. If you feel like you can at the end of the construction and have not had cost overruns to eat up the cash then you could buy down the loan amount with as much of the cash as you are comfortable doing.
 
Definitely get your financing squared away up front. Most all banks won’t touch a partially built house. A friend of mine tried to build his out of pocket and run short, bank wouldn’t loan a penny on a house he had $250k already in. Wound up having to borrow on another piece of property and then get a loan on it after he got the CO.
Lumber is also as high as its ever been unfortunately.
 

DAWG1419

Senior Member
Back in 2003 my builder got in an accident and didn’t recover. It happens. We were at the stage of installing windows. Nothing was roughed in. We finally got going again 6 weeks later. We stuck to a budget of the percentage we got from the draws for everything. Saved us a ton of money. We will have it paid off in 42 more payments.

Words of advice. Do not pay anyone till they are finished and you are satisfied with their work. No matter what they tell you. You will learn a lot. Good luck.
 

marknga

GONetwork Member
Just finished having a new home built.
I would have all construction loan approved before starting. My lender SunMark did the construction loan and then when finished converted to a mortgage.
Good luck!
 

Trip Penn

Senior Member
We built last year. Had decent percent of the money needed to build from the sale of our house. We got our construction loan for the full amount needed to build and built the house. We held our cash until we rolled the construction loan over to a conventional mortgage. Overages and changes we paid directly to the builder or vendor out of our cash.
 

Bob2010

Senior Member
Not sure what you have in the way of investments. I recently found out you can use stocks and bonds accounts as collateral for a cash line. Great deal! 3% rate and your retirement keeps growing. Also land or whatever is in your name. Can't be based off of tax deferred accounts. Use your lenders money and let yours keep growing.
 
Thread starter #19

ugajay

Senior Member
Well after thinking we were about to begin building on our home, contractor called me with more bad news in the way of the housing market. We were once again distraught. And while at work one night I decided to go to one of those homes for sale websites. And just like that in the past couple of weeks we have began closing on a home and 27 acres. Looking forward to having our own place, and honestly glad to not have the headache of building right now. It helped speed things up with me getting my ducks in a row with the bank, thanks to yalls help with my financing questions.
 

gobbleinwoods

Keeper of the Magic Word
Well after thinking we were about to begin building on our home, contractor called me with more bad news in the way of the housing market. We were once again distraught. And while at work one night I decided to go to one of those homes for sale websites. And just like that in the past couple of weeks we have began closing on a home and 27 acres. Looking forward to having our own place, and honestly glad to not have the headache of building right now. It helped speed things up with me getting my ducks in a row with the bank, thanks to yalls help with my financing questions.
27 acres will be a nice amount of land to do some things with. Glad you started the process.
 
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