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Construction loan process for new home build questions
Posted on 10/12/21 at 8:16 pm
Posted on 10/12/21 at 8:16 pm
So how does the construction loan work? Do I have to give the bank 20% of total loan upfront?
Talked to bank today but I was told not to pay for things upfront. Sounds like they want me to use the funds they are allowing me. Do I have to spend their 80% first? Then I get my 20% after? Someone please break it down like I’m 10. First time builder. I own the land and just sold my home that I also owned. Bank isn’t owed anything from me.
Talked to bank today but I was told not to pay for things upfront. Sounds like they want me to use the funds they are allowing me. Do I have to spend their 80% first? Then I get my 20% after? Someone please break it down like I’m 10. First time builder. I own the land and just sold my home that I also owned. Bank isn’t owed anything from me.
7
Posted on 10/12/21 at 8:17 pm to shoelessjoe
Some are 10%, I believe most are 20%. I just remember having to come up with the 10% at closing.
This post was edited on 10/12/21 at 8:21 pm
Posted on 10/12/21 at 8:23 pm to shoelessjoe
Why do you think you can get better answers here than just calling a few local banks and lenders? Do you not have any friends who have built homes? Maybe they could direct you to someone.
This post was edited on 10/12/21 at 8:24 pm
Posted on 10/12/21 at 8:25 pm to shoelessjoe
3.50%
Posted on 10/12/21 at 8:26 pm to tigercross
quote:
Why do you think you can get better answers here than just calling a few local banks and lenders? Do you not have any friends who have built homes? Maybe they could direct you to someone.
Figured someone was in the process that has been going through it.
Posted on 10/12/21 at 8:28 pm to shoelessjoe
Most banks will loan you 95 percent of the appraised value. If you are building a house and it costs 300k to build and it gets appraised at 350k the bank will back 95 percent of the appraised value. At this rate you could roll closing in to the loan and bring nothing to the final closing and build a house for 0 dollars. I didn’t get so lucky because of material costs and had to bring 19k to the construction loan closing and 10k to the mortgage closing.
Posted on 10/12/21 at 8:29 pm to shoelessjoe
Do you own the land or will that be part of the loan? If you own the land, is it paid off?
Eta: just saw the answer.
Depends on what loan to value ratio you and the bank agree on. Most banks will have you float the initial money for the dirt and slab, then you start receiving draws to pay yourself back and other contractors. Once they have confirmed that the work is completed, you can get another draw to continue the process. With the land being paid off, that will work into your loan to value and you should essentially be able to build a house with no out of pocket money, as long as you stay below the agreed upon loan to value.
Eta: just saw the answer.
Depends on what loan to value ratio you and the bank agree on. Most banks will have you float the initial money for the dirt and slab, then you start receiving draws to pay yourself back and other contractors. Once they have confirmed that the work is completed, you can get another draw to continue the process. With the land being paid off, that will work into your loan to value and you should essentially be able to build a house with no out of pocket money, as long as you stay below the agreed upon loan to value.
This post was edited on 10/12/21 at 8:34 pm
Posted on 10/12/21 at 8:30 pm to shoelessjoe
The bank does the process every single day.
You can use your own money and pay yourself back if that is what you want.
You don't have to put down a single dime if the final loan amount is 80% or less than the value of the house. How you get it there is of no concern when the final appraisal and loan amount is done. If you have to bring cash then you bring cash.
You can use your own money and pay yourself back if that is what you want.
You don't have to put down a single dime if the final loan amount is 80% or less than the value of the house. How you get it there is of no concern when the final appraisal and loan amount is done. If you have to bring cash then you bring cash.
This post was edited on 10/12/21 at 8:32 pm
Posted on 10/12/21 at 8:33 pm to shoelessjoe
Your house plans will be appraised. If your property is more than 20% of your anticipated construction costs you will not have a down payment. You will get a check book to write checks to sub contractors. The draw schedule is based on percentages pre determined. You only pay interest on the amount of money you have requested in draws.
Most banks won’t allow self builds anymore unless you can prove you have construction knowledge.
Most banks won’t allow self builds anymore unless you can prove you have construction knowledge.
Posted on 10/12/21 at 9:32 pm to lazcreek
quote:
Your house plans will be appraised. If your property is more than 20% of your anticipated construction costs you will not have a down payment. You will get a check book to write checks to sub contractors. The draw schedule is based on percentages pre determined. You only pay interest on the amount of money you have requested in draws.
This seems about right. Our land loan got rolled in with our new construction. We had to put down 10% of total loan and received a checkbook to pay all the contractors. I get an invoice and then submit to my banker. He deposits into the checking account for me to write checks.
All of our materials comes from Dufrene's building supply, so I use my credit card to pay for materials cost to collect 2% cash back. I then take money from the checking account to pay off the credit card once the money clears. I also pay contractors that take credit card without charging me a fee to get cash back money. I figure I'll have enough cash back money to pay for upgraded tools to outfit my new shop area.
Posted on 10/12/21 at 9:33 pm to shoelessjoe
Do whatever you want. Once the loan is approved, it’s your money.
Posted on 10/12/21 at 9:58 pm to shoelessjoe
I wish I could sticky this thread. So I could better understand this for my next step.
Posted on 10/12/21 at 10:20 pm to LSUisKING12
quote:
Most banks will have you float the initial money for the dirt
Already have dirt pad done and paid for.
This post was edited on 10/12/21 at 10:21 pm
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