Home Buying in Boston>Question Details

sk28, Home Buyer in Boston, MA

Construction loan process?

Asked by sk28, Boston, MA Sat Oct 13, 2012

We are interested in seeing if we can build our dream home from scratch using a local builder (first time homeowner/buyer). Do I need to pay full amount for the land on day 1? Do builders work in a way that they do all the heavylifting (buy land, get permits, begin construction) with a plan to deliver a home to us at a pre-agreed price based on home plans? Finally, is it possible for this to be achieved without 20% down? I know these are lot of questions but I am new to this process. Thanks for your help.

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Yes you can. If you purchase a builder's lot with his package you should be able to do this with as little as 5% down. You most likely will have to choose a house based on a choice of his plans. You will be able to customize it somewhat provided that you pay for these additional costs upfront.

As an alternative, you can use a renovation loan to purchase an existing home with "good bones" or in the perfect location / neighborhood. With the builder of your choice you can completely remodel the property. You can gut the house then replace it with your own kitchen with customized cabinets, use high end appliances,and install marble countertops. You can redesign the rooms and add another bath. You can add a porch or garage. You can even add a whole second floor. This is great option for building your dream home in an already established neighborhood. You only need 3.5% down with the FHA 203K version of a Reno loan. Check this option out.
3 votes Thank Flag Link Sun Oct 14, 2012
I find this depends a lot on both the builder you are using and the type of construction loan you obtain. Larger builders will sometimes do what you are asking as they have the leverage to purchase land (or may own parcels already) and build you a home on it. I tend to see smaller builders not willing to do this as they would be stuck with the land that you picked out with no buyer should something fall through. In those cases, the construction loan is closed in full at the beginning of the process. That can be done with less than 20% down, but that may also depend on your builder and what kind of down payment he/she needs.

Cash requirements for a true construction loan are higher than a traditional purchase. I would talk to a few lenders as they vary considerably. I would also see if you can find a builder who may build a home on spec for you where you can obtain a traditional home loan and close at the end of construction. The answer to this question is going to depend on many variables.
2 votes Thank Flag Link Sun Oct 14, 2012
You are signing up for a major class.
The answer cannot be handled here in this little answer box.

I would use a search engine for the next few months searching for builder horror stories.
Take notes, learn from the problems others ran into.

Then take all your notes and info, choose an experienced local real estate professional and choose a local attorney who has experience with buying new construction from builders.

(Please note: when you choose an answer as a Best Answer, or at least give a thumbs up, it helps those who answer questions here.)
1 vote Thank Flag Link Sat Oct 27, 2012
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