Custom Build Finance Questions

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LSUtigerME

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They will only loan you enough to cover 80% of the estimated build costs. That includes the appraisal and payoff of the land, so the land equity will be rolled into it.

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So paying down the lot loan is advantageous in regards to the construction loan.

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I’m not exactly sure what you’re asking because it depends on timing of selling your existing home. If you sell at some point during your build, that equity can be used to pay down the new home build (and hence not coming out of the construction loan).

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Home will be sold in conjunction with completion of build and the equity will be rolled into permanent mortgage.

TIA

Take your estimated cost to build and add 20% to it for a custom built home. Also keep 50k on the side for expenses that may come up and closing costs when it’s time.

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Doing a custom build home in 12-15 months. First time doing custom build and will be forever home. Equity in Current Home: $65,000 Equity in Property to Build on: $35,000 Property Value: $90,000 Total Estimated Equity: $100,000 that would be rolled into construction/permanent loan Estimated Build cost $400,000 20% would be $80,000 Since I have enough equity to cover the 20% typical downpayment for custom build do I need to build a larger cash reserve or would it be more prudent to aggressively pay down the lot loan over the next 12-15 months. Or does the 20% have to be in cash reserves? Will start talking to loan officers early 2025 but just thinking out loud and in advance. TIA

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I remember the first time I built my forever home 3 years ago

Now I can’t build my forever home with a 500k down payment.

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I remember the first time I built my forever home 3 years ago

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I built my first two years ago....

I love my home and have no plans to leave. But I now see a path in other directions if the situation is right. I think most of us remain dreamers and risk takers throughout life. It does end in our 40s or 50s.

To the OP- Call the lender and ask those questions. I built in 1996 and used the land as my down payment since the loan was based on the appraisal (Which includes land value). That may not be possible in your situation.

Good luck with the house plan. Sounds like you have a vision. You will make it happen, I am sure.

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I built my first two years ago.... I love my home and have no plans to leave. But I now see a path in other directions if the situation is right. I think most of us remain dreamers and risk takers throughout life. It does end in our 40s or 50s. To the OP- Call the lender and ask those questions. I built in 1996 and used the land as my down payment since the loan was based on the appraisal (Which includes land value). That may not be possible in your situation. Good luck with the house plan. Sounds like you have a vision. You will make it happen, I am sure.

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Yeah I built mine in 2020 and moved in December of 2020. I had enough property to build a shop and really thought I would be there for a long time with my 2.6% interest rate. At the 2,5 year mark last June my wife got a job offer we couldn’t refuse so now I’m in Spring Texas in a 1600 sqft foot rental.

Baton Rouge mortgage was $2590 a month and to get something similar over here with the rates and taxes it would be $4500 to $5500 a month.

I would start shopping for loan officers now. Check with the credit unions first.
Let them know your timeline, they will work with you.

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Equity in Current Home: $65,000
Equity in Property to Build on: $35,000
Property Value: $90,000
Total Estimated Equity: $100,000 that would be rolled into construction/permanent loan

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Don't think any of this will be relevant when getting construction loan

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Estimated Build cost $400,000
20% would be $80,000

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Have you gotten this build cost under contract? Have plans and a builder selected? Need to get this ironed out first.

Also most banks will loan based on the appraised value of your future home. If it appraises for higher, less down payment. If it appraises for less than your build cost. You will need a bigger down payment.

Also some do as low as 10% of appraised value.

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Since I have enough equity to cover the 20% typical downpayment for custom build do I need to build a larger cash reserve or would it be more prudent to aggressively pay down the lot loan over the next 12-15 months. Or does the 20% have to be in cash reserves?

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They wont roll over your equity. They will want cash.

There's literally 0 reason to pay off a loan to get a new loan, you are much better off bringing the cash to the table. Worst case, you can always pay the loan off at the end...but that will never make any sense.

For one, your "equity" in the land can always change. But again, cash is always king when it comes to a loan. You can certainly cash out refinance and all sorts of other options, but at the end of the day you are just moving around your...cash.

I’m custom building now. My opinions and advice:

Do not sign a price per square foot contract. Do a cost plus contact with a reputable builder used to custom homes with the clients best interest at heart. A custom home means meticulous design, planning, and a methodical approach to building.

Doing a PPSF contract opens up the f-it cut corners door by the builder. I am seeing this now with competing builds in my hood. I would not do that with a custom home as costs will always be higher. A reputable builder will factor in cost overruns and build it in the proposal which helps with the loan.

Know that there will always be situations where you are faced with deciding to upgrade/add something you want that was not foreseen, cut back, do it right, etc. You want cash reserves for that. You need cash reserves for the project.

Never rush the builder. Be a team working to achieve a goal. Bitching at him everyday on petty things like why did the guys leave early today….all that does is open up the f-it just get it done door which opens up the shoddy door. Home building can be complicated and sometimes it’s better to wait two weeks to wait until the A-team framer is available instead of wanting things to get done.

Banks do not lend for hardscaping and landscaping outside of a pretty basic budget. I assume you want that with a custom build? So you will need cash for that.

If you can afford it, I highly recommend a licensed architect (not a draftsman) who offers services throughout the build. It is his/her creation and wants to be sure it is built according to his/her vision. They will hold the builder accountable throughout the process, recommend specialty trades, and essentially take the stress off of you. Our time is valuable, so not having to worry about that knowing pros are handling it is tranquility at its finest.

Also for landscaping…I recommend a licensed architect as well. The good landscaping companies often have their own or use a guy.

Good luck!!! It’s very fun and exciting!