Builder Construction Loans

Learn more about Builder Construction Loans at the website RouhNeckChronicles.com.

Q: Does anyone have any experience with owner builder construction loans? Who did you get the loan with?

A: Wells Fargo.

Q: For new construction loan: Can we get a loan if we want the builder to finish the shell but we finish inside?
My husband and I are looking to build a new home and would like the builder to take it only to the studs. We have a lot of construction know how and want to finish the inside ourselves to save money (We will subcontract some of it out). Will the bank loan us enough to pay the builder and buy the supplies we will need to finish it? How do we go about doing this?

A: yes you can get a loan like this — but you will need a complete detail estimate of how much it will cost to finish out the house === i did the very same thing == i took out one loan for the construction and a separate loan to finish the project. you want to set up the 2nd loan on a line of credit where by you only draw money out as you need it. i do not know your schedule but you will find that unless you are working at this full time it will take much longer than what you plan == that is why you want a line of credit type loan so you are only paying interest on the money as you use it. same way with the insurance == you will want to work with you agent so as the value of the house goes up so does the coverage. i wish you the best of luck and keep smiling because you two are taking on a task that will be putting a big strain on your personal life but it can be very rewarding in the long run.

Q: How do construction loans work?
My husband and I are working with a builder of a subdivision we are planning on building in. We chose a home from the options this builder has for the sub. To get started on the house, we need to give him $5,000 down. However we do not have the funds saved so we are able to do a construction loan. I’ve heard so many things about construction loans and how the fees are horrible. Yet, its been so hard for me to find any information. Would the fees be that steep, even though we only need $5000 down? Is there any specific banks/companies out there that make this process easier that anyone would recommend? Any help or information would be greatly appreciated. Thank You!

A: It doesn’t sound like you are being required to get a construction loan. The builder is asking for an earnest money deposit. Typically, builders require $5,000 to start the home and would ask for an additional 5 or 10 during different phases of the project. If they are going to build something to your specifications, they want you to have enough money into it so you don’t back out. The only financing you will need is a normal mortgage, once the house is complete. You will be able to use the money given to the builder as the down payment. Otherwise, you can buy the model.

Q: when a builder takes out a construction loan he pays interest only when he spends $…can u help me with this?
on a loan of 12,000 the builder has stated he will spend 20 % the 1st month, 50% the 2nd and the remaining 30% during the third month. Based on the cumulative total spent, how much monthly interest does he owe at the end of each of the three months if the interest rate is…… 14% annually. of course 1 month= 1/12th of a year.

A: You would do the calculations as follows:

At the end of the first month, he owes interest on the amount drawn, times the annual % divided by 12;
the end of the second month, he would owe interest on the total amount drawn in that month which is, the first months draw plus the second months draw, divided by 12;

the end of the third month, he would owe interest on the total amount drawn in that month, which is the first two months plus the third months draw, divided by 12.

This is, of course, assuming that he actually pays the interest amount each month and doesn’t accrue the interest owed until the 3rd month and then pays it! If he does that, then you would need to add in the amount of interest accrued from the first month forward.

Q: Construction loans in Florida?
My brother wants to get a construction loan to build his own house.

he has the land picked out and a purchase aggrement from the land owner and his boss (a builder) is going to sign off as the builder for the loan.

He has his blue prints and his cost estimate ready.

My ? is what else do we need? before we go to the bank?
does anyone know of a bank that does construction loans with the purchase of the land too!

Any advice/help would be Great!!!

A: First the bank, whoever you go with is going to want to see you bring someting to the table. Depending on his credit scores and income will be a determining factor in what down payment they want to see.

2nd- If he owns a home now, he does not have to sell it before beginning construction. There are loans available that you basically do not make a payment on the loan until the construction is complete and the loan is converted to your long term financing. We actually have a lender that does a 3 n 1. Aqcuisition for the land, $ for the construction & then converts to permanent financing upon completion.

3rd-as long as you have someone experienced on your team, it can be an owner builder project.

If you have any additional question you can visit our construction loan Q&A – it covers length of time, etc.

www.aimwithfocus.com/construction_loan.html

Q: Builders Risk Insurance for a Construction Loan on a Mobile Home?
We are trying to buy a new Mobile Home which will be converted to real property. We are working with a very well known bank institution and have been approved for a construction loan. They are telling me that Builders Risk Insurance needs to be purchased before they can give us a final approval on the loan. I called the local insurance companies and they insist they do not cover it for Mobile Homes. I brought this to the banks attention over a month ago, yet they are still telling me I need to get Builders Risk Insurance. What do I do? Supposably the mobile home builders don’t cover the Builders Risk Insurance or the contractor, so it’s up to me. How does this usually work? Is the buyer usually the one responsible for this?
Well we call them mobile homes here, but it is a Manufactured home.

A: I’ve never heard of a Builders Risk policy on a mobile home, because the actual CONSTRUCTION happens in a factory – regardless of the kind of foundation you get for it.

Your BEST bet, is to hire a general contractor, who’s going to be doing the work. The GC should have in place, a “blanket basis” builders risk policy, on a reporting form, so that every month he adds new projects, and deletes the ones that are completed. That’s you ONLY chance, IMO, to get any form of builders risk coverage – but as it’s in the GC’s name, it will probably NOT satisfy the bank. You’re going to have to go to a different bank, probably one that the builder recommends. Unfortunately, because it’s a much higher risk loan (on a mobile home), the rate will probably be higher than a conventional construction loan.

What MOST people do, is have everything run through the builder or the GC, and let THEM worry about the insurance/bank issues – that way, you aren’t responsible until the title is transferred over, after the building is complete.

I’m assuming that you’re talking about a true mobile home, NOT a manufactured home, or “prefab” home.

Q: With a construction loan, can I walk away from the deal & have the builder keep the house? Is this forclosure?

A: This would depend on who is holding the construction loan. Many times what you will find with some of the larger builders and those who build mass amounts of homes in subdivisions, that THEY will fund the construction of the home and then all you need to do is find the end loan and basically just buy the house from them.

If you have not been to an actual closing, then you are NOT liable for the loan. If you have merely agreed to buy the home when it is done, put some earnest money down for good faith, then you are clean. Well…you would lose your earnest money.

This will mainly depend on who’s name the construction loan is in. Now, if you actually got the construction loan, and went to closing and everything, then you are responsible for the loan.

If you have anymore questions, please feel free to contact me at timothy.kazee@americanhm .com. Good luck.

Q: Builder suggested credit line in our name and has not paid balance?
My builder suggested that we apply for a credit line at this place, we have given him 100% of our construction loan, and the payments are now past due. How badly will this affect our credit for our mortgage application? Is there any other action we can take to help or protect ourselves?

A: You have been duped and are stuck with the loan repayment.
About the only thing I can think of is to get a lawyer and sue the contractor.
You can also file complaints with the Better Business Bureau,your state Attorney General office and your city dept. that deals with licensing of businesses within the city.
This will affect your credit,so you may have to make the loan payments until the issue is resolved to protect your credit.
In the future,do not give a 100% aadvance.
Make a partial payment in advance and ask for invoices/receipts for all materials purchased and check them against what was actually used.
Other payments are made as necessary with the final payment to be made when the job is completed and passes final inspection by the city inspector.
You may be able to make a deal with a local building supply company to provide everything needed and pay them directly.
All you have to do is tell them what you need and when it is needed and your contractor can only get the materials from them and no where else without advance approval from you.

Don’t deal with another contractor that wants you to do the same thing again.
Legitimate contractors already have their credit established and contacts with supply companies.

Q: Is it legal for a home builder to pass along interest charges and closing cost over and above the cost?
The builder seems to be pushing me towards a construction loan vs a standard loan. I prefer a std. loan

A: You can’t get a conventional loan on construction. You get teh construction loan now, and convert it to a conventional after construction. There are no fees involved with the conversion.

The home builder should NOT be paying any fees, the home owner does that. The builder works for you,

Q: When does a construction loan typically expire for new home builders?

A: If you are getting a construction to permanent loan, they usually give you 6 to 24 months…..

Q: Are there legal consequences for placing bogus contracts into escrow in order to fool the construction bank?
I know a builder who was in default on his construction loan on a small neighborhood project, (45 homes). The lender has give him every opportunity but he keeps screwing up the sales office and team. Now, under the gun, he got some old friends to put 3 of them under contract for 90 day escrows, hoping that by the time the 90 days are up, he will have 3 legitimate escrows and his friends can cancel their contracts, thereby fulfilling his requirement to get 3 in to escrow immediately. Is this not an attempt to defraud the bank? What are the changes that the bank knows these are bogus contracts and they want to keep their fat out of the fire with their investors? What is the ethical thing to do? There is nothing in it for me either way. I do, though, find him arrogent.

A: It is fraud! Report what you know to the bank anom style & bail! Anyone screwed enough to pull that kind of stunt is liable to come after you with a bat for speaking up! Just think about what could happen to the friends credit if they are stuck in those contracts!

Q: What would you do if your builder ask for more money?
We recently broke ground on our new home. Our builder is asking for a 500 dollar advancement to help him out (probably for his own day to day bills). Our builder was slow to start with anyway. We did check refs before we went with him, and all checked out okay. What do you think? Also, would you give him the money? The money would come from the constructions loan.
My husband said he was having to use it to pay personal/business bills. This is not money for the house. I understand people have to make a living, but I just don’t know.

A: make sure that you get a written estimate and a contract before you give any money

Q: Home Loan disbursement in borrowers name instead of builder/ vendor?
I am in process of finalizing the home loan for construction of house with SBI. SBI agreements says that the Loan shall be disbursed to the builder. Is it possible that the loan disbursed to the borrowers account? means my self.

A: SBI is in a better position to ans your question.

HMT

Q: Home builder in Florida closed down operations and took our money. How can we get the bank to write off loan?
The amount was $55,000 plus…he never constructed a thing and had the money since June of 2005. We went through the DBPR…Florida’s constrution recovery fund but you may only see a % of the loss returned if any which may take years to recoup.

We continue to pay on a first draw construction loan. What can we do to get the bank to write this loan off. What else can we do to Rid of this loan?

Are there any loop holes or contacts that could help us?

People in same situation have taken builders to court..they win a judgement..but can’t collect and still have to pay for legal help and court fees so this does not seem to be the way to go.

Paying for nothing just is killing me…The Builder has stolen the money…closed up shop and I owe the Bank the Money he stole! What kind of legal system is this???

Any help Would be greatly Appreciated!

Thanks in Advance
Otto

A: It isn’t the lenders fault that you hired a crook so that is a moot point, although I understand your frustration.

About all you can do is try to find the builder and file a lien against everything they own, especially their own personal home or vehicles. If you can’t find them, all you can do is hire a lawyer and get some advice. Go to one who gives free consultations and get advice that way first to see if you have a case.

Good luck to you. Sure hope you can get it worked out in your favor.

Q: What happens to a construction loan when…..?
I currently have a constuction loan that will turn to a 30yr loan after the year time that the house is to be built. My builder has disapeared and I am running out of time. I have not started building. The only thing that is currently on the loan is the land. What happens after the years time if I have not built on it yet.

A: As was stated, the construction loan does not turn into a mortgage. The construction loan is bought out, and the mortgage follows up. There will be a specific period set for the construction loan length at the beginning which is determined by the size of the project and how long it should take to complete. What others have said is NOT TRUE, your construciton loan will mature even if the house is not done. If there is no house built, you may also be in breach of the terms of the mortgage (they want the house as colateral). You could find yourself in a situation where they call in the construction loan with no 30 year loan to back it up, and the land is siezed. It is crucial to talk to the bank and get an extension so this does not potentially happen. Then find a builder (hopefully you did not give the last one a deposit) with a good reputation. Cheaper is rarely better, make sure they are licensed (if your state requires), and check references. Do not play around with this or you could find yourself in a real mess.

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