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.
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?
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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.
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,
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.
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