What kind of loan for construction, please.

rosieMarch 14, 2005

We bought our land outright, as well as a modest mobile home to live in during construction, which is installed with water, septic and electricity. We'll have the home constructed for us to a dried-in stage, then take over and finish it ourselves using mainly my monthly paychecks to purchase materials (and the resale from the mobile home once we get a certificate of occupany for the main floor). Our hope was to do the whole thing without borrowing money at all. However, we've recently loaned money to a family member and now need a relatively short-term source of money to bridge any gap to the dried-in stage. $20K or so. What kind of loan should we be looking for? Thanks very much for any suggestions.

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Sounds like you need a construction loan. These are usually 6-12 month loans on homes while the house is being built. Generally you convert them to a full mortgage after the house is complete but it sounds like you might not need to do that, of course you can just pay it off. Actually if I remember correctly we could have stayed on our construction loan for up to 24 months.

    Bookmark   March 21, 2005 at 7:41AM
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Thanks Cseyer. We haven't borrowed anything worth mentioning since a basic mortgage a quarter century ago, so it'll be interesting to find out how excited lenders are about lending on a house that won't be finished when their money's spent. I'll call on one of those commercials that promises to have them chasing you.

    Bookmark   March 22, 2005 at 5:44PM
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Hi Rosie,

The ones that make a big noise on commercials are often ones that I like to avoid - after all, you know who ends up paying their advertising budget.

Ask around among friends, people who know how to manage money, etc.

Good wishes for finding the best deal around.

joyful guy

    Bookmark   March 22, 2005 at 8:44PM
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I'd say call around different lenders have different rules. One may not loan on a home that has not expected finish date while another may be more flexible. A name that comes to mind to call is IndyMac you might want to search around the Building a Home forum I know this has come up before.

    Bookmark   March 23, 2005 at 10:58AM
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Here is a link to IndyMac they have a bunch of reading material on individual construction loans.

Here is a link that might be useful: IndyMac Construction Loan

    Bookmark   March 23, 2005 at 11:01AM
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Thanks very much for all the good advice, including IndyMac and being careful about the big advertisers. To tell the truth, joyful guy, I've actually been avoiding the knowledgeable friend who comes to mind because I didn't want to show just what dummies we are about this stuff. With a couple loan discussions with distant agents under our belt, tho, if they didn't come to anything we'd at least be reacquainted with a few of the phrases that might be thrown out. Thanks again. I'm off to the building department now so they can tell me I filled out their forms wrong. Rosie

    Bookmark   March 23, 2005 at 1:12PM
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If you own your land then check into taking a "land loan" or "home equity loan" against the land. Basically you will be taking equity out of your land to build your house.

We did this and the closing costs were about $350 versus $5000 for a construction loan. Generally you can loan upto about 80% of the land's value. Not all banks will do this but make some calls with info at hand (credit scores, estimated land value, estimated loan amount, and estimated yearly income) and run it past the bank officer. I called about 10 banks/brokers and three banks (no brokers) were very willing. We went with the bank with the best rates.

The "land loan" or "home equity loan" may have a little higher rate than a regular mortgage. But you also have complete control of the money and how/when it is spent. No bank inspections or bank construction rules to deal with. We considered a construction loan but it would have required that the house be completed (everything). We plan to move-in before the house is completed and finish over time. This gave us the option to finish the house as we wanted (hardwood floors, tile, countertops, etc). Once we have our Certificate of Occupancy I plan to do some "mortgage shopping" and refinance if the rates are better.

    Bookmark   March 24, 2005 at 12:03AM
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