Financing in Tollhouse>Question Details

Corey Jones, Home Buyer in Tollhouse, CA

If you own a piece of property and want to build your home on it, can you get a construction loan as a first time home buyer?

Asked by Corey Jones, Tollhouse, CA Wed Sep 18, 2013

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Rob Weber’s answer
The answer is, "yes", you can do this. A construction loan is designed to take an existing plot of land and build on it or purchase+build at the same time. In the scenario where you already own the land, your loan will be a bit easier than if you are purchasing the land at the same time you're getting your construction loan (but barely noticeable). The closing for your construction loan will pay off the lien on the property if one exists and turn your loan into one loan with interim finincing until you're ready to finish your construction loan and rull the interim loan into a permanent loan.

As for the process of how this is done, lenders who offer construction loans will do this differently, some will offer a "one-time" close where you close up front then the work begins and there's some type of automatic conversion at the end after the final draw is complete, into your permanent loan whereas others have two closings, the second being for the permanent loan.

Whoever you decide to work with, become familiar with their process, ask about the draw disbursement timeline, how many draws are allowed and what criteria they're looking for to approve your builder/general contractor as some lenders are VERY strict about contractor approvals and others are well, much less strict.
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0 votes Thank Flag Link Wed Sep 18, 2013
My best advice is "Listen to John Arendsen"! He has listed the pitfalls very accurately. And, let me add one more from a lender's perspective: Getting financing for DIY construction is very, very difficult to find.

Generally, any type of construction loan (general construction or FHA 203K or other rehab loans) are going to have a specified time frame...usually six months. Assuming you are working (so you have income to qualify for the mortgage in the first place), you are going to have very little time to devote to the construction project. This would be true even if you were a licensed General Contractor...obviously your income would be significantly impacted if you quit building for other and started building for yourself.

I do understand the desire to do the work yourself. I have remodeled many homes myself and I have acted as my own General Contractor...however, in all cases I was using my own money...not a lenders. And, I had the time, experience and economic wherewithal to accomplish completion of the project without impediment of lender requirements.

Best of luck,

1 vote Thank Flag Link Thu Sep 19, 2013
You surely may assume the role of "Owner Builder" but be aware of what it may entail before you make that plunge. If you're not a general contractor you may start out with a huge obstacle from the get go as most banks set construction loans up on FUND CONTROL and will only release funds on a "Progressive Payment" basis.

Then there's the time limit stipulation in most if not all construction loans. You will be on a timeline to finish the home by a certain pre agreed upon date. Should you not finish within that timeline you will have to renegotiate your construction loan and it could be very expensive for you.

Then you will have to secure a "Take Out Loan" thereby removing the construction loan and ending up with a conventional loan of some sort providing the home appraises within established loan to value ratios. Should you run over budget that could present another challenge.

If it sounds like I'm trying to discourage you, I am. Unless you're an experienced builder or very handy and have a very friendly banker I wouldn't even attempt to take on such a task; Not even with a Modular Home. There's just too many uncontrolled variables that can sink the average Joe deep into the pearly brine.

All that stated there's nothing wrong with you taking on the role of "Owner Builder". However, only in the capacity of chief delegator, or as my wife always says about me "Finger Pointer". In this way you can hire your own general contractor and all your sub contractors and just keep a hands on at arms length if that makes andy sense.

But once again it will require you keeping your eye on the ball at all times. So if you have a full time job or can't be hands on from the trenches to the chimney I'd recommend getting an experienced, qualified, licensed, bonded and insured General Building Contractor and letting them run with it. just my humble opine as 30 year veteran general and manufactured home contractor and developer. Good Luck.
1 vote Thank Flag Link Thu Sep 19, 2013
I do single close owner occupied construction loans in Ca with as little as 3.5% down. The construction loan can be used for the purchase of the dirt, fees and the build.

0 votes Thank Flag Link Fri Nov 1, 2013
Ask your bank and the condition of first time home buyer plays no role in the question.
0 votes Thank Flag Link Thu Sep 19, 2013
Do you own the land outright?

J.R. Thrasher
0 votes Thank Flag Link Thu Sep 19, 2013
Mechanic liens are written proof that building a house is not as simple as it may look. I have financed a couple thousand end loans so you can say that I have a little experience dealing with builders. The fact that you are asking this question prompts your uncle Jim to say sloooow down, take a deep breath, show me your spec sheet, what is a balustrade? Is it okay to leave out a purlin just because the framing contractor said it is ok? If you leave it out and the roof caves in, who do you file suit against?

Back to your question, I am having trouble getting construction loans for builders, I doubt seriously if most banks will lend to a consumer that has never built a house before. If you still want to go for it, and can find a construction loan, at least hire a project manager that does know how to build a home. And have an attorney fill you in on how long your liability runs after you sell the home someday, cause you is the builder... “R” the builder, oh, whatever…

If you asked this question because your builder can't get a construction loan, HUH?

Jim Simms
NMLS # 6395
Financing Kentucky One Home at a Time
I answer questions about financing real estate based on my decades of experience dealing with mortgage underwriters. I do not offer legal or tax advice, if you need answers from an attorney or CPA find one knowledgeable in your local market.
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0 votes Thank Flag Link Thu Sep 19, 2013
I know a couple of great lenders you can talk to about this:

Noah Solis
Mortgage Banker
NMLS #395889
759 West Alluvial Ave Fresno CA 93711 Suite 101
(C) 559.375.9365 (F) 888.834.8552 (O) 559.412.5550

Jessica Mejia
Loan Officer
NMLS# 1073881
559-790-5668 Cell
559-490-2695 Office
877-769-5948 Fax

Take care and have a wonderful day.
Debbie Ray
0 votes Thank Flag Link Wed Sep 18, 2013
I have the answer for you but I need to ask you a few questions. Please call me.
0 votes Thank Flag Link Wed Sep 18, 2013
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