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Construction loan for an owner builder

I'm looking for some advice / options for building a house from scratch.  I have my eye on a nice piece a land that is currently on the market for about 60k with completed houses around it worth from 300k to 450k.  I have done quite a bit remodeling a few bathrooms, kitchen, and other minor projects around my house for years. So I have the knowledge to do a lot of minor jobs around the construction of the house get some 'sweat equity' out of the house and also manage most of the jobs by lining up the contractors ordering material and doing whatever I can to save a dollar.  Everything I have read indicates it is very difficult to get a construction loan without a licensed GC to run the job for me, but I wouldn't be able to afford to build the house I want if I have to pay their fee along with the contractors actually doing the work.

I have about 30k equity in my current house and about 90k in my 401k that I can always take a portion as a 15 year payback loan for purchase of a house, plus 5k in cash available.  What type of financing options do I have? downpayment requirements? Will I need a construction mgmt company?

Thanks in advance for any advice,

Andrew
  • August 09 2011 - Greensburg
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Answers (2)

If it's midwest, or say a second home from someone that lives in the midwest, you can potentially get a one loan construction loan at 70% of the final, post-construction value.   We don't do those, but I know someone that does if you want a referral.  
  • August 10 2011
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Sweeneyat

You have many questions and issues here that can not be answered in just a couple of paragraphs or sentences.

My son and I own both a custom home building company and separate mortgage company.

First, most lenders who will even consider construction loans will require at least a 50% equity in the land.  More, in this market, prefer that the land be free and clear.

Construction financing typically will go to 65% of total cost.   The lenders will also want to ensure that you have permenant financing in place to pay off the construction loan once building is complete.

Moreover, lenders will want to see the resume, licensing, insurance, and bonding of your builder to even consider your loan.  If you want to go owner builder, these same lenders will want a licensed contractor to at least be on board in a supervisory capacity.

While I admire your goals, in construction with all the regulations and codes that must be followed, many people in your position run into issues that require a licensed contractor to later come in and straighten out.

I suggest that you sit down with your local bank to at least discuss this issue.  Chances are they will raise some of the concerns that I have layed out above.

Best of Luck.
  • August 09 2011
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