All opinions are always 100% honest and my own. As an Amazon Associate I earn from qualifying purchases. I also participate in: CJ Affiliate; eBay Partner Network; Rakuten Affiliate Network; ShareASale; Walmart Affiliate Program; independent affiliate networks.
Before we can dig the hole, we've got to secure a construction loan. No matter how good our credit is, no matter how big our down payment, no matter how secure our income, this step has always just been nerve-wracking to me. It keeps me up and night and gives me ulcers. Mostly, I suppose, because it feels like it is completely out of our control.
The current financial market is making things exponentially worse.
After sending the 1040's and the W-2's and all the other various and sundry forms and statements, our broker ordered an appraisal of the project. What a nightmare! The first appraisal came back. It was just about the exact same cost of labor and materials to build. Without even considering the quarter of a millions dollars we spent on the lot.
Why?
When the real estate market tanks, no one can sell their homes. And when nothing sells, the prices plunge. When prices drop below the existing mortgages, people have to use a short sale. And when short sales are prevalent, housing comps are unimaginably horrible.
You would think that a depressed housing/construction market would be a great time to buy or build. And it is, if you can get financing. We've got subcontractors calling us day and night, anxious to get to work. But every single comp for our size of home that has sold since April in our city—every single one—was a short sale. Read that: appraisals make the land utterly worthless.
Right now we are working through the problem of trying to build a house that will cost almost as much as the appraisal and trying to get a loan-to-value ratio that doesn't put us off the interest rate charts.
Given the rock-bottom interest rate from the Federal Reserve—and all the billions in bailout money the banks are getting—you'd think they'd have something to lend at a reasonable rate. But so far, I'm not seeing it.
Alison Moore Smith is a 61-year-old entrepreneur who graduated from BYU in 1987. She has been (very happily) married to Samuel M. Smith for 40 years. They are parents of six incredible children and grandparents to two astounding grandsons. She is the author of The 7 Success Habits of Homeschoolers.
What did you look for when trying to get a construction loan? How do you know you’re not getting ripped off?
This is what has kept me from building a custom home. I’m sure we’d never make it through all the requirements. But we can still get a mortgage from a large builder without a problem.
I would love to build a home, but don’t even know where to start with the money side. Where do you go to find one? Do all banks do these kinds of loans?
Oh, I know how you feel. Financing a home is enough to give you an ulcer. Good luck with your project.
The banks have all our bailout money and they aren’t loaning anything. That sucks. Maybe if the government gave me back the money they took, I wouldn’t need a loan.
Been there. What a pain.
BTW nice new look and integration.
Thank you for the great comments. I’m sorry that I haven’t addressed them, I missed the notification!
SRT, here are the main things I look for:
Good interest rate
One-time close
Lack of junk fees and add-ons
Good terms (no pre-payment penalty, etc.)
Trusted institution (although who knows what that means these days!)
Randall, you are right. Going through a big builder is definitely easier than trying to build your own design. YOUR design isn’t a proven commodity. A builder’s stock plans are, to some extent.
In hindsight — given the lending climate — I don’t think we could have found a mortgage lender to work with us had we decided to act as our own general contractors.
Perry B, it was tough. Even looking at bank web sites and advertising doesn’t help much right now. So many of the lending institutions that still advertise offering construction loans, don’t!
Ultimately, we found our loan by using our trusted mortgage broker, Lon Stone. He helped us with the last construction loan and this one as well. We weren’t nearly as pleased with the results this time, but I don’t think that had much to do with Lon’s service. He worked hard for his commission.
Thanks to all of you for the kind response.
Banks are hanging on to the money like I’ve never seen. I’m a broker and believe me, we want to get the loans as much as you do.
WOW just what I was searching for. Came here by searching for loan