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  1. #1
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    Question Financing a Custom Home Build?

    Is anyone familiar with the process for financing a custom home build?

    I'm interested in buying property and then building a small custom house on the property.

    Let's assume the numbers work out to something like this-
    $150k for property
    $350k for design, construction of custom house

    My understanding is that raw land is much more complicated to finance. What portions of the $500k would I be able to finance and how would I do so?

    Thanks mags!

  2. #2
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    Rudimentary knowledge only but likely headed this route some point during the next few months. Higher interest rates on a construction loan. The banks cuts checks of varying amounts at defined but sometimes subjective intervals of project completion. Refinance after the COO is obtained.

  3. #3
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    What Mazerati said. Higher interest rates. Process varies in different places. Bank typically pays draw requests based on project progress, which usually requires a construction manager or architect (less common these days) on your nickel to inspect and issue certifications. Bank will likely want to review and approve contract between you and GC. Some banks require co-payee checks, payable to you and GC, sometimes to vendors or subs, and interim lien releases. Construction loans are typically short-term and contemplate takeout permanent financing when house is completed and CO obtained. IME it's best to deal with a smaller community bank for construction loans. Also a good idea to have an attorney look at the loan docs and answer questions you may have. Best o' luck.

  4. #4
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    Good to know. Is it possible to get a loan for the land as well or does that need to be purchased outright?

  5. #5
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    Quote Originally Posted by Big Steve View Post
    Also a good idea to have an attorney look at the loan docs and answer questions you may have. Best o' luck.
    ^^^ This

  6. #6
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    Bob (or more likely his assistant since he's notoriously hard to get on the phone) will be able to answer those questions. Just give the office a ring and tell him you're considering your housing alternatives after the recent unpleasantness and wondered if he'd be willing to give you a short course on this topic. Guarantee he'll know the in and outs right off the top of his head.
    Brandine: Now Cletus, if I catch you with pig lipstick on your collar one more time you ain't gonna be allowed to sleep in the barn no more!
    Cletus: Duly noted.

  7. #7
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    Quote Originally Posted by Kevo View Post
    Good to know. Is it possible to get a loan for the land as well or does that need to be purchased outright?
    When I last looked into it, the right bank would finance the whole nut, but expect a down payment of at least 20-30%.

  8. #8
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    Quote Originally Posted by Sirshredalot View Post
    When I last looked into it, the right bank would finance the whole nut, but expect a down payment of at least 20-30%.
    Think about what you just wrote.

    Financing for home construction is a whole new world these days. You'll need patience and a lot of cash. Yes to working with a local bank. Yes to buying the land out right. You may be able to finance the lot, up until you have a construction loan. Then you'll have to go out of pocket for a set of plans. The bank is generally going to appraise you plans then make you qualify for a loan based on their estimate of what it will take to build, not what you think it will cost. You may be able to do a great job keeping the project under your budget and have equity when you are done. Your construction lender could give two shits.

    A pretty good rule of thumb in Colorado these days is to have 30-50% of the projected value of the home in cash. In other words, if you don't have $100K, it is gonna be tough. There are creative ways to get financed but the banks got burned by generals and homeowners that didn't know what they were doing...it is starting to feel the same all over again.

  9. #9
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    If you haven't already, talk to some contractors and they will be able to tell you which banks are good at these types of loans and which ones suck to work with.
    There is ongoing management during the process and working with folks who aren't complete asses will make this a much more pleasant process.
    Some banks are just more experienced with it and make it easier.
    (I have a client who just bounced between three banks before settling on a reasonable one.)




    (speaking completely out my ass...cuz I have no idea on your local market)
    $350k for design & construction:
    If 10% is professional fees, that's $318k for permits, site development & construction.
    permits might be $3-5k
    site development could be all over the board depending on site/locale/utility access $10k-50k, lets say $20k
    so, $295k for structure (finishes, fixtures, equip etc)
    so, at $200/sf for the building, that's about 1,475sf?
    does this sound about right?

  10. #10
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    ^^^Your site work number is way low unless you are talking about simply paying for a water tap and municipal utilities in the suburbs. I try and equalize all costs up to the subfloor. In other words, you can build whatever house you want but you have little control over well, septic, utility hookups, driveway construction, excavation etc. Those costs can add up fast.

    Kevo, you'll find out real quick that this is a game for people with money. The type of land you are looking at is key. An established subdivisios (neighborhood) with history of successful projects is gonna be much easier that raw land where you will be responsible for all the infrastructure. If the later, just plan on buying the lands and going out off pocket for all the pre-consturction costs.

    Ever wonder why you see adds for land, "utilities in, soils test and septic plan complete, custom home plans available"?

  11. #11
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    And required insurance....

  12. #12
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    ok thanks

    i just wanted to throw out a breakdown as an example because folks we talk to don't understand that "$xxx for building" doesn't just mean one check to a GC

  13. #13
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    I just had a home built. Up here I needed 25% down on a 6 month construction loan. Roughly 6% interest. I bought my land outright and could use the value of the land as part of the 25% down. It was not an easy process but in the end I am glad I did it. Then again, the housing market in Juneau, AK is crazy so it made building more economical.

  14. #14
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    Quote Originally Posted by acinpdx View Post
    (speaking completely out my ass...cuz I have no idea on your local market)
    $350k for design & construction:
    If 10% is professional fees, that's $318k for permits, site development & construction.
    permits might be $3-5k
    site development could be all over the board depending on site/locale/utility access $10k-50k, lets say $20k
    so, $295k for structure (finishes, fixtures, equip etc)
    so, at $200/sf for the building, that's about 1,475sf?
    does this sound about right?
    That is exactly what I was hoping for. Roughly 1,500 square foot.

    Quote Originally Posted by Foggy_Goggles View Post
    Kevo, you'll find out real quick that this is a game for people with money. The type of land you are looking at is key. An established subdivisios (neighborhood) with history of successful projects is gonna be much easier that raw land where you will be responsible for all the infrastructure. If the later, just plan on buying the lands and going out off pocket for all the pre-consturction costs.

    Ever wonder why you see adds for land, "utilities in, soils test and septic plan complete, custom home plans available"?
    Ha, yeah that makes sense although I haven't seen ads that say that. I was hoping that it was possible to put down 20% on an all in $500k land and build project. Sounds like $100k cash may not be enough to make it happen?

  15. #15
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    Unlikely, but as advised...check with your local bank. If you are lucky, you'll have 10% equity when you are done. You'll earn every penny. The time and stress involved are unbelievable, specially if your budget is tight and it is your first time. As an example, consider the following scenario: You can't quality of afford your mortgage after the home is built. It happens. Rising interest rates, job loss, unexpected major expenses (medical?), change in underwriting standards, etc.

    I'm not trying to talk you out of it...simply trying to to make you away that many get in over their heads.

  16. #16
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    Nightmare scenarios are possible with anything. Do your homework and vet the participants if you move forward. It can be a net positive.

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