I am looking for some advice on getting a construction loan
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I bought 50 acres and have a mortgage on the land. I have spoke with a few local banks and am having trouble finding one to finance my building project. I am looking to be the GC in order to save some money and get things done right. So the bank that doesn’t require a ton of money in savings won’t let me GC it and the bank that will requires more cash than I have after buying the land. Is there a way to finance a new construction home and GC it with little cash? Or will I just have to wait it out another couple of years…
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You will have to wait it out.
Banks are gun shy and will not pull the trigger on giving out construction loans, especially if you want to be GC. Banks DO NOT like lending if you don't have building experience and don't have a licensed and bonded GC working for you. With a licensed GC they view them as knowledgeable and have the experience in building. The bank will cut checks when work is completed, inspected and a licensed GC is more "trusted" than a homeowner swinging a hammer.
That's not to say you can't build a great home but when playing when the banks money, that changes things and banks are not gambling today.
If the land was paid off, that would change things but with a note on the land and then attaining another note on the build, way too much risk and a low value/to loan ratio. Banks want equity to protect themselves if things go south.
Save your money, pay off the land, then revisit building.
How big of a home did you want to build?
Thanks for the reply. I'm looking to build a 2000sf home. I put the driveway and well in and put a good amount down when I paid for the land so I'm hoping it won't take to long to get going. I'm located in upstate NY and am planning on 2x6 walls with 4" rigid foam on the exterior. I will be purchasing a Tulikivi 2700 series masonry heater which we are excited about. I will have more questions later on in the process I'm sure, like how to flash where a flat concrete over corrugated metal decking roof meets an exterior wall.
You may have shot yourself in the foot with the driveway and the well. banks generally won't loan once work has started. They don't want the possibility of a contractors lien against the property. I would imagine (though I am no loan expert) that if you find a bank willing to finance you, you will need at minimum full billing and payment records and possibly some sort of other statement that you have no outstanding debts with those contractors.
I suggest you look into the insurance issue too. Some carriers may not want to cover you for Builders Risk insurance if you function as your own GC. And if they do you, and you intend on doing much of the work yourself, you may run out the clock on the number of renewals they allow.
BTW, if your land was largely debt free you could probably work with the folks at Farm Credit: http://www.countrylivingloans.com/ I suspect they would be more flexible than a typical bank.
This link might be helpful: http://www.investopedia.com/articles/personal-finance/032315/getting-mortgage-when-building-your-own-home.asp
Donald,
If the driveway and well were paid for in cash and fully documented, it's not a problem. In my rural area wells and driveways are put in always before home building, sometimes years prior. Never been a problem with getting a home construction loan. Actually, the opposite is true. Lenders prefer that there is a road and a well since no construction can commence without the infrastructure of an access road and water being on the site. No water = no home loan. Banks will NOT lend if there is no water there and/or the well is low producing (under 5GPM).
You can't do site surveys without a road and you can't build a home without water at the job site. Unless you bring in a water hauling truck but no bank will lend without knowing that there is a good water source available to the home. Can't live in a home without water. Some areas have water storage tanks since the wells are so deep and don't produce water. Banks will not lend on such homes and they have to pay cash for such a home.
Thanks everyone for the comments. I have done a good bit of research on masonry heaters and haven't come across that company, so thanks. I am currently using Farm Credit East and they will most likely be the bank I use seeing that they will allow me to GC it. They are just looking for a little more savings at this point. Thanks again.
Hey, did you find anyone? I know it's been a long time since this thread was updated, but I have the same problem now, and I hope you guys will help me.
I totally get it, finding a bank to finance a construction project can be a pain. Have you thought about talking to a mortgage broker in Southport https://liverpoolmoneyman.com/mortgage-broker-southport/? They might have more options for loans and could help you find a solution that works for your situation. Being the GC is a smart way to save some cash, so don't give up on your dream just yet! Keep looking and exploring different possibilities.
From me experience getting a construction loan.
The first thing to understand is banks will not take any risk.
The first question is will you qualify for a conventional loan for the price of the completed home with 20% equity in the project given your income and other debits? If not on loan is possible.
One of the biggest factors is the appraisal number generated by the appraiser selected by you bank that you pay for in the application fee. The comparable homes he finds to your plans and what they sold for. Note my appraiser could found zero value in above code insulation, better than code windows, upgraded HVAC and everything else you want in your new home. If you want the goodies, you will need the cash to pay for them above and beyond the 20% equity.
There was no way my bank was going to take on the risk of an inexperienced GC and forget about owner GC.
I see no way I could have gotten this house built with less than 50% cash/equity.
Walta