CONSTRUCTION LOANS

What down payment is required? – Downpayment on construction loans can be confusing. Most construction loans in Texas require between 10% and 20% down. Equity in the land usually counts toward equity.

When does land “equity” not count toward downpayment? – Land equity that does not count would be if you are buying the land at a discounted price, then the difference between purchase price and land “value” would not count toward downpayment. Another case is when you bought the land 1 or more years ago at a certain price and now it is “worth” a higher price, that difference in purchase price and value will only count if the “value” is “reasonable” and shows up in the appraisal report.

When I get the permanent conventional loan can I also roll closing costs into the loan?
Yes, this is common and the appraised value needs to be high enough to support the extra amount.

Can I get a construction loan with $0 down? – Yes you can, if you have equity in the land or if you are willing to have a CD with the investor. But remember that $0 down is not the same as $0 in the bank. You will need to have cash reserves (usually $15,000).

Down payment – 10%-20% of total cost (land + construction budget + closing costs) (*some investors do not allow closing costs in budget) (again land equity usually counts toward down payment)
Reserves – 2 – 6 months of PITI for current homes/land + new home completed and taxed

Some buyer questions & examples …

I am still not clear on some things. I am anticipating $170,000 for construction of the home. I paid $41,000 for the land and owe $32,000 on the land loan. How should I figure out the amount of construction loan I can get?
Most investors allow you to add closing costs, but you have to add it to the budget. for your example…
$170k const + $32k land + 8k closing costs = $210k remaining closing costs
$170k const + 41k cost of land + 8k Closing costs = $219k total costs
90% of total costs = $197,100 loan amount – down payment is $13k
85% of total costs = $186,150 loan amount – down payment is $24k

When closing the permanent loan will construction cost and the remaining balance on the land (32K) will be rolled into a conventional mortgage?
Yes but the land is also rolled into the construction loan. Remember there is the OTC (One Time Clost) and TTC (Two Time Close) options. With the TTC there is a construction loan and a permanent conventional mortgage. The construction loan is not a conventional mortgage but a 12 month mortgage.

If we do roll these closing costs into the loan (assuming this is possible), can this still be done so that I don’t have to use 20k at closing?
We because you will have to have at least 10% “skin in the game” and your current “skin in the game” is $9000 ($41k – $32k) you will need to bring some more money as a down payment or “skin in the game” to the construction loan… around $13k is my guess.

We don’t quite understand the cash outlay we should be anticipating prior to the construction loan, the amount we should be spending out of pocket during the construction loan process, and what we should anticipate bringing to the table at closing. Can you shed some light on this for us?
Cash outlay is approximately this
House Plans – $3000 – $5000
Soil Testing – $0 – $1000 (builder dependent)
Builder Startup/Deposit – $0 to 20% (builder dependent)
Construction Appraisal – $600 for loan appraisal / application
Construction close – $0-20% for down payment at construction close
Construction close – closing costs – is possible to roll into loan
Permanent close or modification for OTC – closing costs – is possible to roll into loan

For a OTC (One Time Close) I don’t undershand how there could be any costs associated with the permenant loan? Please explain.
The permenant loan has a modification at the time the house is finished and the permanent rate is set. Different investors have different fees at “modification” time. Usually the investor is keeping this loan but more likely if it is a 15 or 30 year fixed loan then they are selling the loan and making 1% – 2% when sold depending on what interest rate the loan is at. Here are some possible OTC perm loan fees…
– $300 to $500 modification fee
– 0.25% of loan amount escrow waiver fee if you are not escrowing taxes and insurance monthly with the lender
– 2 to15 months of taxes or hazard insurance for the reserves if you are escrowing taxes and insurance monthly with the lender. the big variance in the amount of months taken depends on how soon the taxes or hazard insurance is due.
-$0 to $250 for mortgage insurance (but this is a rare circumstance)
– $329 Title modification fee (but this is a rare circumstance on a OTC)

When can I “lock the interest rate” of the permanent loan rate? –
Locks on 15 & 30 year fixed loans ….
Fannie / Freddie “lenders” have 15, 30, 45, 60, 90, etc locks
30 day locks are “free”
Sometimes a 15 day lock will yield a 1/8 point better rate

Remember when converting a construction loan to a permanent loan there is a “3 day right of rescission” that actually takes 5 days (not including Sundays). This has the effect of making a 30 day lock a 25 day lock.

45,60,90,+ day locks have a “cost” associated with them
The longer the lock the higher the cost
This differs from lender to lender
This must be paid for in advance
This is not refundable
This does not guarantee the loan

One lender’s fees …
60 – 0.7% in fees
90 – 0.25 in rate and 0.5% in fees
120 – 0.375 in rate and 0.8% in fees
240 – 0.625 in rate and 1.3% in fees

You mentioned a number of requirements of the construction lender as to upfront payments, and some variables.  I wasn’t able to make notes.  I know we can’t really have an accurate discussion until we get the appraisal back and review it relative to value of the lot we own free and clear, plus $18K we’ve already paid, plus $288K construction budget and $14K contingency going forward.  But in general, if you could please outline what you had mentioned about 20% down payment, buying a CD ahead of time, etc., that would be helpful. With the lender in your particular area that handles owner builder construction loan …. take lower of total cost of land & construction, then you have two options…

1. take 80% of that amount, that will be the loan amount, the rest you need to pay for

2. take 85% of that amount, the interest rate is 0.5% higher, that will be the loan amount, the rest you need to pay for (P.S. this requires approval by lender)

(PS if you bring $ and place in CD with lender you can increase the  construction loan amount by the amount of the CD)

One Owner Builder Adjusters to Interest Rate

You mentioned that the construction lender requires that the amount of the loan be as great or greater than the amount of loan on the perm.  In dollars or percentage LTV?  I was under the impression from previous discussions with construction lenders that the exact amount of the perm could be decided later.  We do prefer to have at least 20% downpayment for the perm to avoid PMI, but I didn’t think that we had to make that decision now. Please elaborate? It is typically advisable to make sure the construction loan is equal or greater than the desired permanent loan. The reason for this is because if the permanent loan is larger than the construction loan then it is technically a “cash out” loan which runs into fee problems and problems when you get above 80% of appraised value and a higher rate since lenders consider cash out loans to be higher risk. Both the permanent and the construction loan is evaluated before the construction loan closes, and both must “work” from the beginning (in other words there needs to be a “home” for the permanent loan at the start of the construction loan. Yes, the numbers (appraisal, amount borrowed, interest rate) will change after 6-7 months of construction, so they will need to be recalculated when preparing the permanent loan.

OWNER BUILDER

Want to be your Own Builder / General Contractor? This is a very tough loan to get in Texas and we know where to get this tough loan and where the good and bad investors are.

What interest rates are available?Currently rates range from 5.0% to 7.0% depending on location and strength of borrower. Most loans we close are in the 5.0% to 5.75%. APR is in the 9% to $14% rate. The APR is much higher because construction loans have additional fees on the borrower and mainly because the loan is spread out over 1 year verses 30 years. But APR is almost impossible to accurately calculate on a construction loan because the amount owed each month is not uniform an is unknown until loan servicing.

Do I need a “builder of record”? – Yes, all Texas residential construction loans need a builder of record.

Can I be my “builder of record”? – No but if you have a bonified incorporated company that will satisfy the state of Texas, but you still need a builer to satisfy the investor. Basically you cannot build your house under your name.

Why does a “builder of record” charge a fee? – Mainly because they are liable to the investor and there needs to be some income for services provided.

Does being my own builder affect what construction loans are available? – Yes, since an owner builder construction loan has the risks of a construciton and an owner builder fewer investors are willing to approve owner builder construction loans and some investors have stricter terms or qualifications. But we constantly search and look for investors with favorable terms for owner builder construction loans.

Do you offer OTC (One Time Close) owner builder construction loans? – Yes we do but there are only a few investors that offer this type of loan and the permanent loan is not fixed for the entire 15 or 30 years.

When will my monthly bill be due? – on the same day your construction loan closed. There is a 10 day grace period. The bill will be send 10 days before it is due. If you need to request a special “due” date, please request this before the loan closes.

What scores are needed to get a construction loan? 680 and above is recommended. About 70% of those with a 640 to 680 can get a construction loan. If you are a strong borrower and have lower than 650 it may be possible but the chances are much lower. Of course if you are willing to pay very high interest rates, there is always a lender as long as they can be assured their loan is secure.

What down payment is required? – Downpayment construction loans can be confusing. Most construction loans in Texas require between 10% and 20% down. Equity in the land usually counts toward equity.

When does land “equity” not count toward downpayment? – Land equity that does not count would be if you are buying the land at a discounted price, then the difference between purchase price and land “value” would not count toward downpayment. Another case is when you bought the land 1 or more years ago at a certain price and now it is “worth” a higher price, that difference in purchase price and value will only count if the “value” is “reasonable” and shows up in the appraisal report.

How does a construction loan work? – Make sure you will qualify for a construction loan (we can help with that) then finalize your house plans, builder, and construction budget, we get an appraisal for the house/land combo and the loan closed. All construction loan funds are a reimbursement of house completition not and advance to go build, so you have to complete a portion of the house to get funds for the portion of the house completed.

Can I roll in closing costs and land payoff costs? – In most cases the land payoff is covered and the closing costs are covered by the loan. The main thing that can prevent closing costs being rolled into the loan is the loan-to-value ratio is more than 90%, we see this when the location is bad or there is a lot of cost in the budget for items not included in living square foot number. The other reason we cannot include the closing costs in the loan if we need to use one of our secondary investors that does not allow closing costs rolled into the loan.

When I get the permanent conventional loan can I also roll closing costs into the loan?
Yes, this is common and the appraised value needs to be high enough to support the extra amount.

Can I get a construction loan with $0 down? – Yes you can, if you have equity in the land or if you are willing to have a CD with the investor. But remember that $0 down is not the same as $0 in the bank. You will need to have cash reserves (usually $15,000).

Can I be my own builder? – Yes you can but you will need a contract with a builder of record (see below), plans, and a construction budget.

Is a Builder of Record needed? – In Texas all residential construction loans need a “builder of record”, but builders do not need to be registered with the state. There are state and investor requirements for builders. The state requirement is that a different entity (corporation or individual) must be the “builder of record” the investor requirement is they have to be a “reputable” builder (different investors have different definitions of “reputable” builder, a very few allow it to be your mother/brother/friend (but it does exist), and most require it to be an experienced builder with a good reputation among their subcontractors and suppliers). This means that if the investor is not familiar with the builder, then the builder will need to fill out a “builder application” that has basic info about the builder and a list of homes built and contact info for suppliers and subcontractors.

What does it take to qualify for a construction loan? –
Down payment – 10%-20% of total cost (land + construction budget + closing costs) (*some investors do not allow closing costs in budget) (again land equity usually counts toward down payment)
Reserves – 2 – 6 months of PITI for current homes/land + new home completed and taxed
Credit Score – mortgage credit score is calculated by a mortgage credit pull and using the middle score and taking the lower score if there is more than one borrower
– – – 700+ all investors accept this score
– – – 680+ most investors accept this score
– – – 660+ several investors accept this score
– – – 640+ only a few investors accept this score and the loans are looked at more carefully
Debt to Income Ratio – this ranges from 35% to 50% (again depends on the lender but most are at 38% to 43%) and is calculated by adding all you credit card minimum payment + car payments + house PITI + new house PITI + monthly payments on school loans and other loans/committments divided by monthly gross income (after expenses for self employed)
Appraised Value – the value of the house and land when the house is built is appraised by a certified appraiser must be worth more than the cost (* if the cost is more than the appraised value then the investor adjusts by lowering the loan amount)

How long does a construction loan take? – It depends on a few factors of timing and getting a complete loan package. It takes time to gather all the data of income, assets, borrower profile, property value, construction plan and contract, title, etc. Most construction loans take around 5 weeks to go from application to closing, but this assumes that there are no major delays. A rush loan can take two weeks but this leaves no room for investors, appraisers, title, broker being real busy or holidays or sickness or major problems.

Where can I get a construction loan? – We can get you a construction loan most anywhere (there are certain types of construction loans we cannot do outside Texas due to licensing). Most investors stay within a certain area or group of counties, but some investors handle all of Texas. So the construction location can affect the investor and therefore affect the construction loan terms or interest rate.

Do you handle OTC (One Time Close) construction loans? – Yes we can handle these. As with any loan there are advantages and disadvantages.

What are the advantages and disadvantages of a OTC (One Time Close) construction loan? – The advantage is you save $2500 to $5000 in closing costs for a permanent loan (* savings depends on loan amount). There is also an advantage of no or less qualifying for the permanent loan. There are “costs” for the permanent loan that are collected when the loan modifys unless they are collected up front when the construction loan closes. The disadvantages is the permanent loan is not always a 30 or 15 year fixed loan, there are 5/25 or 7/23 or 10/20 versions where the loan is fixed for 5 years and the rate adjusts for 25 years or 7 fixes / 23 adjusting or 10 fixed / 20 adjusting. The other disadvantage is that all the OTC loans I have seen have slightly higher interest rates during the permanent loan, this eats away at the saving of two closing costs. The other disadvantage is that if you want to do an owner builder loan, the only one available is the 5/25 or 7/23 or 10/20 construction/fixed/adjusting loans. So the OTC is perfect for the person planning to be in the loan less than 5 or 10 years, but not so good for those in the permanent loan long term.

Do you handle TTC (Two Time Close) construction loans? – Yes we can handle these. As with any loan there are advantages and disadvantages.

What is the application / underwriting / paperwork process? – The process is as follows …

1. Fill out and send us a construction application
2. (Prequalification is $75 and optional …We pull your credit and do DTI calculation and LTV calculation and send file to underwriter for boarder line issues)
3. You finalize your house plans (plans should take between 3 weeks and 2 months)
4. We send you fully typed loan application and disclosures to sign and return
5. You send us income, bank, and other documents related to the contract, budget, property and loan
6. If buying land with the transaction then you send us land purchase contract (it is recommended to put a 60 day (or longer) close date for the land close
7. You send us a check for the appraisal and application (application fee refunded when loan closes) (some builders do appraisal after construction budget step) (appraisal takes 5-10 work days)
8. You send us builders contract
9. You send us 1-3 page construction budget
10. We but all the loan information together and package it up for investors
11. We submit to our investor’s underwriters (it sits there 1-5 days)
12. Underwriters send us loan conditions and we contact you
13. We gather conditions from you & title & appraiser & your employer & payoff information (this takes 2-3 days)
14. Underwriter submits for review of final approval (this takes 1-2 weeks)
15. Title and investor prepares closing document (this takes 1-3 days)
16. We schedule date and time for closing and let you know the final closing costs along with the amount of check to bring, if any
17. You normally see the HUD settlement statement the day before closing
18. You come to closing with spouse and sign final loan documents and agreements
19. Bring bank check (made out to title company) or wire money to title company for cash to close, if any
20. Bring drivers license for all borrowers and spouses
21. Loan is normally funded that day or the next

I am still not clear on some things. I am anticipating $170,000 for construction of the home. I paid $41,000 for the land and owe $32,000 on the land loan. How should I figure out the amount of construction loan I can get?
Most investors allow you to add closing costs, but you have to add it to the budget. for your example…
$170k const + $32k land + 8k closing costs = $210k remaining closing costs
$170k const + 41k cost of land + 8k Closing costs = $219k total costs
90% of total costs = $197,100 loan amount – down payment is $13k
85% of total costs = $186,150 loan amount – down payment is $24k

When closing the permanent loan will construction cost and the remaining balance on the land (32K) will be rolled into a conventional mortgage?
Yes but the land is also rolled into the construction loan. Remember there is the OTC (One Time Clost) and TTC (Two Time Close) options. With the TTC there is a construction loan and a permanent conventional mortgage. The construction loan is not a conventional mortgage but a 12 month mortgage.

If we do roll these closing costs into the loan (assuming this is possible), can this still be done so that I don’t have to use 20k at closing?
We because you will have to have at least 10% “skin in the game” and your current “skin in the game” is $9000 ($41k – $32k) you will need to bring some more money as a down payment or “skin in the game” to the construction loan… around $13k is my guess.

We don’t quite understand the cash outlay we should be anticipating prior to the construction loan, the amount we should be spending out of pocket during the construction loan process, and what we should anticipate bringing to the table at closing. Can you shed some light on this for us?
Cash outlay is approximately this
House Plans – $3000 – $5000
Soil Testing – $0 – $1000 (builder dependent)
Builder Startup/Deposit – $0 to 20% (builder dependent)
Construction Appraisal – $600 for loan appraisal / application
Construction close – $0-20% for down payment at construction close
Construction close – closing costs – is possible to roll into loan
Permanent close or modification for OTC – closing costs – is possible to roll into loan

For a OTC (One Time Close) I don’t undershand how there could be any costs associated with the permenant loan? Please explain.
The permenant loan has a modification at the time the house is finished and the permanent rate is set. Different investors have different fees at “modification” time. Usually the investor is keeping this loan but more likely if it is a 15 or 30 year fixed loan then they are selling the loan and making 1% – 2% when sold depending on what interest rate the loan is at. Here are some possible OTC perm loan fees…
– $300 to $500 modification fee
– 0.25% of loan amount escrow waiver fee if you are not escrowing taxes and insurance monthly with the lender
– 2 to15 months of taxes or hazard insurance for the reserves if you are escrowing taxes and insurance monthly with the lender. the big variance in the amount of months taken depends on how soon the taxes or hazard insurance is due.
-$0 to $250 for mortgage insurance (but this is a rare circumstance)
– $329 Title modification fee (but this is a rare circumstance on a OTC)

When can I “lock the interest rate” of the permanent loan rate? –
Locks on 15 & 30 year fixed loans ….
Fannie / Freddie “lenders” have 15, 30, 45, 60, 90, etc locks
30 day locks are “free”
Sometimes a 15 day lock will yield a 1/8 point better rate

Remember when converting a construction loan to a permanent loan there is a “3 day right of rescission” that actually takes 5 days (not including Sundays). This has the effect of making a 30 day lock a 25 day lock.

45,60,90,+ day locks have a “cost” associated with them
The longer the lock the higher the cost
This differs from lender to lender
This must be paid for in advance
This is not refundable
This does not guarantee the loan

One lender’s fees …
60 – 0.7% in fees
90 – 0.25 in rate and 0.5% in fees
120 – 0.375 in rate and 0.8% in fees
240 – 0.625 in rate and 1.3% in fees

You mentioned a number of requirements of the construction lender as to upfront payments, and some variables.  I wasn’t able to make notes.  I know we can’t really have an accurate discussion until we get the appraisal back and review it relative to value of the lot we own free and clear, plus $18K we’ve already paid, plus $288K construction budget and $14K contingency going forward.  But in general, if you could please outline what you had mentioned about 20% down payment, buying a CD ahead of time, etc., that would be helpful. With the lender in your particular area that handles owner builder construction loan …. take lower of total cost of land & construction, then you have two options…

1. take 80% of that amount, that will be the loan amount, the rest you need to pay for

2. take 85% of that amount, the interest rate is 0.5% higher, that will be the loan amount, the rest you need to pay for (P.S. this requires approval by lender)

(PS if you bring $ and place in CD with lender you can increase the  construction loan amount by the amount of the CD)

One Owner Builder Adjusters to Interest Rate

You mentioned that the construction lender requires that the amount of the loan be as great or greater than the amount of loan on the perm.  In dollars or percentage LTV?  I was under the impression from previous discussions with construction lenders that the exact amount of the perm could be decided later.  We do prefer to have at least 20% downpayment for the perm to avoid PMI, but I didn’t think that we had to make that decision now. Please elaborate? It is typically advisable to make sure the construction loan is equal or greater than the desired permanent loan. The reason for this is because if the permanent loan is larger than the construction loan then it is technically a “cash out” loan which runs into fee problems and problems when you get above 80% of appraised value and a higher rate since lenders consider cash out loans to be higher risk. Both the permanent and the construction loan is evaluated before the construction loan closes, and both must “work” from the beginning (in other words there needs to be a “home” for the permanent loan at the start of the construction loan. Yes, the numbers (appraisal, amount borrowed, interest rate) will change after 6-7 months of construction, so they will need to be recalculated when preparing the permanent loan.

OWNER BUILDER

Want to be your Own Builder / General Contractor? This is a very tough loan to get in Texas and we know where to get this tough loan and where the good and bad investors are.

What interest rates are available?Currently rates range from 5.0% to 7.0% depending on location and strength of borrower. Most loans we close are in the 5.0% to 5.75%. APR is in the 9% to $14% rate. The APR is much higher because construction loans have additional fees on the borrower and mainly because the loan is spread out over 1 year verses 30 years. But APR is almost impossible to accurately calculate on a construction loan because the amount owed each month is not uniform an is unknown until loan servicing.

Do I need a “builder of record”? – Yes, all Texas residential construction loans need a builder of record.

Can I be my “builder of record”? – No but if you have a bonified incorporated company that will satisfy the state of Texas, but you still need a builer to satisfy the investor. Basically you cannot build your house under your name.

Why does a “builder of record” charge a fee? – Mainly because they are liable to the investor and there needs to be some income for services provided.

Does being my own builder affect what construction loans are available? – Yes, since an owner builder construction loan has the risks of a construciton and an owner builder fewer investors are willing to approve owner builder construction loans and some investors have stricter terms or qualifications. But we constantly search and look for investors with favorable terms for owner builder construction loans.

Do you offer OTC (One Time Close) owner builder construction loans? – Yes we do but there are only a few investors that offer this type of loan and the permanent loan is not fixed for the entire 15 or 30 years.

When will my monthly bill be due? – on the same day your construction loan closed. There is a 10 day grace period. The bill will be send 10 days before it is due. If you need to request a special “due” date, please request this before the loan closes.

What scores are needed to get a construction loan? 680 and above is recommended. About 70% of those with a 640 to 680 can get a construction loan. If you are a strong borrower and have lower than 650 it may be possible but the chances are much lower. Of course if you are willing to pay very high interest rates, there is always a lender as long as they can be assured their loan is secure.

What down payment is required? – Downpayment on construction loans can be confusing. Most construction loans in Texas require between 10% and 20% down. Equity in the land usually counts toward equity.

When does land “equity” not count toward downpayment? – Land equity that does not count would be if you are buying the land at a discounted price, then the difference between purchase price and land “value” would not count toward downpayment. Another case is when you bought the land 1 or more years ago at a certain price and now it is “worth” a higher price, that difference in purchase price and value will only count if the “value” is “reasonable” and shows up in the appraisal report.

How does a construction loan work? – Make sure you will qualify for a construction loan (we can help with that) then finalize your house plans, builder, and construction budget, we get an appraisal for the house/land combo and the loan closed. All construction loan funds are a reimbursement of house completition not and advance to go build, so you have to complete a portion of the house to get funds for the portion of the house completed.

Can I roll in closing costs and land payoff costs? – In most cases the land payoff is covered and the closing costs are covered by the loan. The main thing that can prevent closing costs being rolled into the loan is the loan-to-value ratio is more than 90%, we see this when the location is bad or there is a lot of cost in the budget for items not included in living square foot number. The other reason we cannot include the closing costs in the loan if we need to use one of our secondary investors that does not allow closing costs rolled into the loan.

When I get the permanent conventional loan can I also roll closing costs into the loan?
Yes, this is common and the appraised value needs to be high enough to support the extra amount.

Can I get a construction loan with $0 down? – Yes you can, if you have equity in the land or if you are willing to have a CD with the investor. But remember that $0 down is not the same as $0 in the bank. You will need to have cash reserves (usually $15,000).

Can I be my own builder? – Yes you can but you will need a contract with a builder of record (see below), plans, and a construction budget.

Is a Builder of Record needed? – In Texas all residential construction loans need a “builder of record”, but builders do not need to be registered with the state. There are state and investor requirements for builders. The state requirement is that a different entity (corporation or individual) must be the “builder of record” the investor requirement is they have to be a “reputable” builder (different investors have different definitions of “reputable” builder, a very few allow it to be your mother/brother/friend (but it does exist), and most require it to be an experienced builder with a good reputation among their subcontractors and suppliers). This means that if the investor is not familiar with the builder, then the builder will need to fill out a “builder application” that has basic info about the builder and a list of homes built and contact info for suppliers and subcontractors.

What does it take to qualify for a construction loan? –
Down payment – 10%-20% of total cost (land + construction budget + closing costs) (*some investors do not allow closing costs in budget) (again land equity usually counts toward down payment)
Reserves – 2 – 6 months of PITI for current homes/land + new home completed and taxed
Credit Score – mortgage credit score is calculated by a mortgage credit pull and using the middle score and taking the lower score if there is more than one borrower
– – – 700+ all investors accept this score
– – – 680+ most investors accept this score
– – – 660+ several investors accept this score
– – – 640+ only a few investors accept this score and the loans are looked at more carefully
Debt to Income Ratio – this ranges from 35% to 50% (again depends on the lender but most are at 38% to 43%) and is calculated by adding all you credit card minimum payment + car payments + house PITI + new house PITI + monthly payments on school loans and other loans/committments divided by monthly gross income (after expenses for self employed)
Appraised Value – the value of the house and land when the house is built is appraised by a certified appraiser must be worth more than the cost (* if the cost is more than the appraised value then the investor adjusts by lowering the loan amount)

How long does a construction loan take? – It depends on a few factors of timing and getting a complete loan package. It takes time to gather all the data of income, assets, borrower profile, property value, construction plan and contract, title, etc. Most construction loans take around 5 weeks to go from application to closing, but this assumes that there are no major delays. A rush loan can take two weeks but this leaves no room for investors, appraisers, title, broker being real busy or holidays or sickness or major problems.

Where can I get a construction loan? – We can get you a construction loan most anywhere (there are certain types of construction loans we cannot do outside Texas due to licensing). Most investors stay within a certain area or group of counties, but some investors handle all of Texas. So the construction location can affect the investor and therefore affect the construction loan terms or interest rate.

Do you handle OTC (One Time Close) construction loans? – Yes we can handle these. As with any loan there are advantages and disadvantages.

What are the advantages and disadvantages of a OTC (One Time Close) construction loan? – The advantage is you save $2500 to $5000 in closing costs for a permanent loan (* savings depends on loan amount). There is also an advantage of no or less qualifying for the permanent loan. There are “costs” for the permanent loan that are collected when the loan modifys unless they are collected up front when the construction loan closes. The disadvantages is the permanent loan is not always a 30 or 15 year fixed loan, there are 5/25 or 7/23 or 10/20 versions where the loan is fixed for 5 years and the rate adjusts for 25 years or 7 fixes / 23 adjusting or 10 fixed / 20 adjusting. The other disadvantage is that all the OTC loans I have seen have slightly higher interest rates during the permanent loan, this eats away at the saving of two closing costs. The other disadvantage is that if you want to do an owner builder loan, the only one available is the 5/25 or 7/23 or 10/20 construction/fixed/adjusting loans. So the OTC is perfect for the person planning to be in the loan less than 5 or 10 years, but not so good for those in the permanent loan long term.

Do you handle TTC (Two Time Close) construction loans? – Yes we can handle these. As with any loan there are advantages and disadvantages.

What is the application / underwriting / paperwork process? – The process is as follows …

1. Fill out and send us a construction application
2. (Prequalification is $75 and optional …We pull your credit and do DTI calculation and LTV calculation and send file to underwriter for boarder line issues)
3. You finalize your house plans (plans should take between 3 weeks and 2 months)
4. We send you fully typed loan application and disclosures to sign and return
5. You send us income, bank, and other documents related to the contract, budget, property and loan
6. If buying land with the transaction then you send us land purchase contract (it is recommended to put a 60 day (or longer) close date for the land close
7. You send us a check for the appraisal and application (application fee refunded when loan closes) (some builders do appraisal after construction budget step) (appraisal takes 5-10 work days)
8. You send us builders contract
9. You send us 1-3 page construction budget
10. We but all the loan information together and package it up for investors
11. We submit to our investor’s underwriters (it sits there 1-5 days)
12. Underwriters send us loan conditions and we contact you
13. We gather conditions from you & title & appraiser & your employer & payoff information (this takes 2-3 days)
14. Underwriter submits for review of final approval (this takes 1-2 weeks)
15. Title and investor prepares closing document (this takes 1-3 days)
16. We schedule date and time for closing and let you know the final closing costs along with the amount of check to bring, if any
17. You normally see the HUD settlement statement the day before closing
18. You come to closing with spouse and sign final loan documents and agreements
19. Bring bank check (made out to title company) or wire money to title company for cash to close, if any
20. Bring drivers license for all borrowers and spouses
21. Loan is normally funded that day or the next

I am still not clear on some things. I am anticipating $170,000 for construction of the home. I paid $41,000 for the land and owe $32,000 on the land loan. How should I figure out the amount of construction loan I can get?
Most investors allow you to add closing costs, but you have to add it to the budget. for your example…
$170k const + $32k land + 8k closing costs = $210k remaining closing costs
$170k const + 41k cost of land + 8k Closing costs = $219k total costs
90% of total costs = $197,100 loan amount – down payment is $13k
85% of total costs = $186,150 loan amount – down payment is $24k

When closing the permanent loan will construction cost and the remaining balance on the land (32K) will be rolled into a conventional mortgage?
Yes but the land is also rolled into the construction loan. Remember there is the OTC (One Time Clost) and TTC (Two Time Close) options. With the TTC there is a construction loan and a permanent conventional mortgage. The construction loan is not a conventional mortgage but a 12 month mortgage.

If we do roll these closing costs into the loan (assuming this is possible), can this still be done so that I don’t have to use 20k at closing?
We because you will have to have at least 10% “skin in the game” and your current “skin in the game” is $9000 ($41k – $32k) you will need to bring some more money as a down payment or “skin in the game” to the construction loan… around $13k is my guess.

We don’t quite understand the cash outlay we should be anticipating prior to the construction loan, the amount we should be spending out of pocket during the construction loan process, and what we should anticipate bringing to the table at closing. Can you shed some light on this for us?
Cash outlay is approximately this
House Plans – $3000 – $5000
Soil Testing – $0 – $1000 (builder dependent)
Builder Startup/Deposit – $0 to 20% (builder dependent)
Construction Appraisal – $600 for loan appraisal / application
Construction close – $0-20% for down payment at construction close
Construction close – closing costs – is possible to roll into loan
Permanent close or modification for OTC – closing costs – is possible to roll into loan

For a OTC (One Time Close) I don’t undershand how there could be any costs associated with the permenant loan? Please explain.
The permenant loan has a modification at the time the house is finished and the permanent rate is set. Different investors have different fees at “modification” time. Usually the investor is keeping this loan but more likely if it is a 15 or 30 year fixed loan then they are selling the loan and making 1% – 2% when sold depending on what interest rate the loan is at. Here are some possible OTC perm loan fees…
– $300 to $500 modification fee
– 0.25% of loan amount escrow waiver fee if you are not escrowing taxes and insurance monthly with the lender
– 2 to15 months of taxes or hazard insurance for the reserves if you are escrowing taxes and insurance monthly with the lender. the big variance in the amount of months taken depends on how soon the taxes or hazard insurance is due.
-$0 to $250 for mortgage insurance (but this is a rare circumstance)
– $329 Title modification fee (but this is a rare circumstance on a OTC)

When can I “lock the interest rate” of the permanent loan rate? –
Locks on 15 & 30 year fixed loans ….
Fannie / Freddie “lenders” have 15, 30, 45, 60, 90, etc locks
30 day locks are “free”
Sometimes a 15 day lock will yield a 1/8 point better rate

Remember when converting a construction loan to a permanent loan there is a “3 day right of rescission” that actually takes 5 days (not including Sundays). This has the effect of making a 30 day lock a 25 day lock.

45,60,90,+ day locks have a “cost” associated with them
The longer the lock the higher the cost
This differs from lender to lender
This must be paid for in advance
This is not refundable
This does not guarantee the loan

One lender’s fees …
60 – 0.7% in fees
90 – 0.25 in rate and 0.5% in fees
120 – 0.375 in rate and 0.8% in fees
240 – 0.625 in rate and 1.3% in fees

You mentioned a number of requirements of the construction lender as to upfront payments, and some variables.  I wasn’t able to make notes.  I know we can’t really have an accurate discussion until we get the appraisal back and review it relative to value of the lot we own free and clear, plus $18K we’ve already paid, plus $288K construction budget and $14K contingency going forward.  But in general, if you could please outline what you had mentioned about 20% down payment, buying a CD ahead of time, etc., that would be helpful. With the lender in your particular area that handles owner builder construction loan …. take lower of total cost of land & construction, then you have two options…

1. take 80% of that amount, that will be the loan amount, the rest you need to pay for

2. take 85% of that amount, the interest rate is 0.5% higher, that will be the loan amount, the rest you need to pay for (P.S. this requires approval by lender)

(PS if you bring $ and place in CD with lender you can increase the  construction loan amount by the amount of the CD)

One Owner Builder Adjusters to Interest Rate

You mentioned that the construction lender requires that the amount of the loan be as great or greater than the amount of loan on the perm.  In dollars or percentage LTV?  I was under the impression from previous discussions with construction lenders that the exact amount of the perm could be decided later.  We do prefer to have at least 20% downpayment for the perm to avoid PMI, but I didn’t think that we had to make that decision now. Please elaborate? It is typically advisable to make sure the construction loan is equal or greater than the desired permanent loan. The reason for this is because if the permanent loan is larger than the construction loan then it is technically a “cash out” loan which runs into fee problems and problems when you get above 80% of appraised value and a higher rate since lenders consider cash out loans to be higher risk. Both the permanent and the construction loan is evaluated before the construction loan closes, and both must “work” from the beginning (in other words there needs to be a “home” for the permanent loan at the start of the construction loan. Yes, the numbers (appraisal, amount borrowed, interest rate) will change after 6-7 months of construction, so they will need to be recalculated when preparing the permanent loan.

OWNER BUILDER

Want to be your Own Builder / General Contractor? This is a very tough loan to get in Texas and we know where to get this tough loan and where the good and bad investors are.

What interest rates are available?Currently rates range from 5.0% to 7.0% depending on location and strength of borrower. Most loans we close are in the 5.0% to 5.75%. APR is in the 9% to $14% rate. The APR is much higher because construction loans have additional fees on the borrower and mainly because the loan is spread out over 1 year verses 30 years. But APR is almost impossible to accurately calculate on a construction loan because the amount owed each month is not uniform an is unknown until loan servicing.

Do I need a “builder of record”? – Yes, all Texas residential construction loans need a builder of record.

Can I be my “builder of record”? – No but if you have a bonified incorporated company that will satisfy the state of Texas, but you still need a builer to satisfy the investor. Basically you cannot build your house under your name.

Why does a “builder of record” charge a fee? – Mainly because they are liable to the investor and there needs to be some income for services provided.

Does being my own builder affect what construction loans are available? – Yes, since an owner builder construction loan has the risks of a construciton and an owner builder fewer investors are willing to approve owner builder construction loans and some investors have stricter terms or qualifications. But we constantly search and look for investors with favorable terms for owner builder construction loans.

Do you offer OTC (One Time Close) owner builder construction loans? – Yes we do but there are only a few investors that offer this type of loan and the permanent loan is not fixed for the entire 15 or 30 years.

When will my monthly bill be due? – on the same day your construction loan closed. There is a 10 day grace period. The bill will be send 10 days before it is due. If you need to request a special “due” date, please request this before the loan closes.

What scores are needed to get a construction loan? 680 and above is recommended. About 70% of those with a 640 to 680 can get a construction loan. If you are a strong borrower and have lower than 650 it may be possible but the chances are much lower. Of course if you are willing to pay very high interest rates, there is always a lender as long as they can be assured their loan is secure.

What down payment is required? – Downpayment on construction loans can be confusing. Most construction loans in Texas require between 10% and 20% down. Equity in the land usually counts toward equity.

When does land “equity” not count toward downpayment? – Land equity that does not count would be if you are buying the land at a discounted price, then the difference between purchase price and land “value” would not count toward downpayment. Another case is when you bought the land 1 or more years ago at a certain price and now it is “worth” a higher price, that difference in purchase price and value will only count if the “value” is “reasonable” and shows up in the appraisal report.

How does a construction loan work? – Make sure you will qualify for a construction loan (we can help with that) then finalize your house plans, builder, and construction budget, we get an appraisal for the house/land combo and the loan closed. All construction loan funds are a reimbursement of house completition not and advance to go build, so you have to complete a portion of the house to get funds for the portion of the house completed.

Can I roll in closing costs and land payoff costs? – In most cases the land payoff is covered and the closing costs are covered by the loan. The main thing that can prevent closing costs being rolled into the loan is the loan-to-value ratio is more than 90%, we see this when the location is bad or there is a lot of cost in the budget for items not included in living square foot number. The other reason we cannot include the closing costs in the loan if we need to use one of our secondary investors that does not allow closing costs rolled into the loan.

When I get the permanent conventional loan can I also roll closing costs into the loan?
Yes, this is common and the appraised value needs to be high enough to support the extra amount.

Can I get a construction loan with $0 down? – Yes you can, if you have equity in the land or if you are willing to have a CD with the investor. But remember that $0 down is not the same as $0 in the bank. You will need to have cash reserves (usually $15,000).

Can I be my own builder? – Yes you can but you will need a contract with a builder of record (see below), plans, and a construction budget.

Is a Builder of Record needed? – In Texas all residential construction loans need a “builder of record”, but builders do not need to be registered with the state. There are state and investor requirements for builders. The state requirement is that a different entity (corporation or individual) must be the “builder of record” the investor requirement is they have to be a “reputable” builder (different investors have different definitions of “reputable” builder, a very few allow it to be your mother/brother/friend (but it does exist), and most require it to be an experienced builder with a good reputation among their subcontractors and suppliers). This means that if the investor is not familiar with the builder, then the builder will need to fill out a “builder application” that has basic info about the builder and a list of homes built and contact info for suppliers and subcontractors.

What does it take to qualify for a construction loan? –
Down payment – 10%-20% of total cost (land + construction budget + closing costs) (*some investors do not allow closing costs in budget) (again land equity usually counts toward down payment)
Reserves – 2 – 6 months of PITI for current homes/land + new home completed and taxed
Credit Score – mortgage credit score is calculated by a mortgage credit pull and using the middle score and taking the lower score if there is more than one borrower
– – – 700+ all investors accept this score
– – – 680+ most investors accept this score
– – – 660+ several investors accept this score
– – – 640+ only a few investors accept this score and the loans are looked at more carefully
Debt to Income Ratio – this ranges from 35% to 50% (again depends on the lender but most are at 38% to 43%) and is calculated by adding all you credit card minimum payment + car payments + house PITI + new house PITI + monthly payments on school loans and other loans/committments divided by monthly gross income (after expenses for self employed)
Appraised Value – the value of the house and land when the house is built is appraised by a certified appraiser must be worth more than the cost (* if the cost is more than the appraised value then the investor adjusts by lowering the loan amount)

How long does a construction loan take? – It depends on a few factors of timing and getting a complete loan package. It takes time to gather all the data of income, assets, borrower profile, property value, construction plan and contract, title, etc. Most construction loans take around 5 weeks to go from application to closing, but this assumes that there are no major delays. A rush loan can take two weeks but this leaves no room for investors, appraisers, title, broker being real busy or holidays or sickness or major problems.

Where can I get a construction loan? – We can get you a construction loan most anywhere (there are certain types of construction loans we cannot do outside Texas due to licensing). Most investors stay within a certain area or group of counties, but some investors handle all of Texas. So the construction location can affect the investor and therefore affect the construction loan terms or interest rate.

Do you handle OTC (One Time Close) construction loans? – Yes we can handle these. As with any loan there are advantages and disadvantages.

What are the advantages and disadvantages of a OTC (One Time Close) construction loan? – The advantage is you save $2500 to $5000 in closing costs for a permanent loan (* savings depends on loan amount). There is also an advantage of no or less qualifying for the permanent loan. There are “costs” for the permanent loan that are collected when the loan modifys unless they are collected up front when the construction loan closes. The disadvantages is the permanent loan is not always a 30 or 15 year fixed loan, there are 5/25 or 7/23 or 10/20 versions where the loan is fixed for 5 years and the rate adjusts for 25 years or 7 fixes / 23 adjusting or 10 fixed / 20 adjusting. The other disadvantage is that all the OTC loans I have seen have slightly higher interest rates during the permanent loan, this eats away at the saving of two closing costs. The other disadvantage is that if you want to do an owner builder loan, the only one available is the 5/25 or 7/23 or 10/20 construction/fixed/adjusting loans. So the OTC is perfect for the person planning to be in the loan less than 5 or 10 years, but not so good for those in the permanent loan long term.

Do you handle TTC (Two Time Close) construction loans? – Yes we can handle these. As with any loan there are advantages and disadvantages.

What is the application / underwriting / paperwork process? – The process is as follows …

1. Fill out and send us a construction application
2. (Prequalification is $75 and optional …We pull your credit and do DTI calculation and LTV calculation and send file to underwriter for boarder line issues)
3. You finalize your house plans (plans should take between 3 weeks and 2 months)
4. We send you fully typed loan application and disclosures to sign and return
5. You send us income, bank, and other documents related to the contract, budget, property and loan
6. If buying land with the transaction then you send us land purchase contract (it is recommended to put a 60 day (or longer) close date for the land close
7. You send us a check for the appraisal and application (application fee refunded when loan closes) (some builders do appraisal after construction budget step) (appraisal takes 5-10 work days)
8. You send us builders contract
9. You send us 1-3 page construction budget
10. We but all the loan information together and package it up for investors
11. We submit to our investor’s underwriters (it sits there 1-5 days)
12. Underwriters send us loan conditions and we contact you
13. We gather conditions from you & title & appraiser & your employer & payoff information (this takes 2-3 days)
14. Underwriter submits for review of final approval (this takes 1-2 weeks)
15. Title and investor prepares closing document (this takes 1-3 days)
16. We schedule date and time for closing and let you know the final closing costs along with the amount of check to bring, if any
17. You normally see the HUD settlement statement the day before closing
18. You come to closing with spouse and sign final loan documents and agreements
19. Bring bank check (made out to title company) or wire money to title company for cash to close, if any
20. Bring drivers license for all borrowers and spouses
21. Loan is normally funded that day or the next

I am still not clear on some things. I am anticipating $170,000 for construction of the home. I paid $41,000 for the land and owe $32,000 on the land loan. How should I figure out the amount of construction loan I can get?
Most investors allow you to add closing costs, but you have to add it to the budget. for your example…
$170k const + $32k land + 8k closing costs = $210k remaining closing costs
$170k const + 41k cost of land + 8k Closing costs = $219k total costs
90% of total costs = $197,100 loan amount – down payment is $13k
85% of total costs = $186,150 loan amount – down payment is $24k

When closing the permanent loan will construction cost and the remaining balance on the land (32K) will be rolled into a conventional mortgage?
Yes but the land is also rolled into the construction loan. Remember there is the OTC (One Time Clost) and TTC (Two Time Close) options. With the TTC there is a construction loan and a permanent conventional mortgage. The construction loan is not a conventional mortgage but a 12 month mortgage.

If we do roll these closing costs into the loan (assuming this is possible), can this still be done so that I don’t have to use 20k at closing?
We because you will have to have at least 10% “skin in the game” and your current “skin in the game” is $9000 ($41k – $32k) you will need to bring some more money as a down payment or “skin in the game” to the construction loan… around $13k is my guess.

We don’t quite understand the cash outlay we should be anticipating prior to the construction loan, the amount we should be spending out of pocket during the construction loan process, and what we should anticipate bringing to the table at closing. Can you shed some light on this for us?
Cash outlay is approximately this
House Plans – $3000 – $5000
Soil Testing – $0 – $1000 (builder dependent)
Builder Startup/Deposit – $0 to 20% (builder dependent)
Construction Appraisal – $600 for loan appraisal / application
Construction close – $0-20% for down payment at construction close
Construction close – closing costs – is possible to roll into loan
Permanent close or modification for OTC – closing costs – is possible to roll into loan

For a OTC (One Time Close) I don’t undershand how there could be any costs associated with the permenant loan? Please explain.
The permenant loan has a modification at the time the house is finished and the permanent rate is set. Different investors have different fees at “modification” time. Usually the investor is keeping this loan but more likely if it is a 15 or 30 year fixed loan then they are selling the loan and making 1% – 2% when sold depending on what interest rate the loan is at. Here are some possible OTC perm loan fees…
– $300 to $500 modification fee
– 0.25% of loan amount escrow waiver fee if you are not escrowing taxes and insurance monthly with the lender
– 2 to15 months of taxes or hazard insurance for the reserves if you are escrowing taxes and insurance monthly with the lender. the big variance in the amount of months taken depends on how soon the taxes or hazard insurance is due.
-$0 to $250 for mortgage insurance (but this is a rare circumstance)
– $329 Title modification fee (but this is a rare circumstance on a OTC)

When can I “lock the interest rate” of the permanent loan rate? –
Locks on 15 & 30 year fixed loans ….
Fannie / Freddie “lenders” have 15, 30, 45, 60, 90, etc locks
30 day locks are “free”
Sometimes a 15 day lock will yield a 1/8 point better rate

Remember when converting a construction loan to a permanent loan there is a “3 day right of rescission” that actually takes 5 days (not including Sundays). This has the effect of making a 30 day lock a 25 day lock.

45,60,90,+ day locks have a “cost” associated with them
The longer the lock the higher the cost
This differs from lender to lender
This must be paid for in advance
This is not refundable
This does not guarantee the loan

One lender’s fees …
60 – 0.7% in fees
90 – 0.25 in rate and 0.5% in fees
120 – 0.375 in rate and 0.8% in fees
240 – 0.625 in rate and 1.3% in fees

You mentioned a number of requirements of the construction lender as to upfront payments, and some variables.  I wasn’t able to make notes.  I know we can’t really have an accurate discussion until we get the appraisal back and review it relative to value of the lot we own free and clear, plus $18K we’ve already paid, plus $288K construction budget and $14K contingency going forward.  But in general, if you could please outline what you had mentioned about 20% down payment, buying a CD ahead of time, etc., that would be helpful. With the lender in your particular area that handles owner builder construction loan …. take lower of total cost of land & construction, then you have two options…

1. take 80% of that amount, that will be the loan amount, the rest you need to pay for

2. take 85% of that amount, the interest rate is 0.5% higher, that will be the loan amount, the rest you need to pay for (P.S. this requires approval by lender)

(PS if you bring $ and place in CD with lender you can increase the  construction loan amount by the amount of the CD)

One Owner Builder Adjusters to Interest Rate

You mentioned that the construction lender requires that the amount of the loan be as great or greater than the amount of loan on the perm.  In dollars or percentage LTV?  I was under the impression from previous discussions with construction lenders that the exact amount of the perm could be decided later.  We do prefer to have at least 20% downpayment for the perm to avoid PMI, but I didn’t think that we had to make that decision now. Please elaborate? It is typically advisable to make sure the construction loan is equal or greater than the desired permanent loan. The reason for this is because if the permanent loan is larger than the construction loan then it is technically a “cash out” loan which runs into fee problems and problems when you get above 80% of appraised value and a higher rate since lenders consider cash out loans to be higher risk. Both the permanent and the construction loan is evaluated before the construction loan closes, and both must “work” from the beginning (in other words there needs to be a “home” for the permanent loan at the start of the construction loan. Yes, the numbers (appraisal, amount borrowed, interest rate) will change after 6-7 months of construction, so they will need to be recalculated when preparing the permanent loan.

OWNER BUILDER

Want to be your Own Builder / General Contractor? This is a very tough loan to get in Texas and we know where to get this tough loan and where the good and bad investors are.

What interest rates are available?Currently rates range from 5.0% to 7.0% depending on location and strength of borrower. Most loans we close are in the 5.0% to 5.75%. APR is in the 9% to $14% rate. The APR is much higher because construction loans have additional fees on the borrower and mainly because the loan is spread out over 1 year verses 30 years. But APR is almost impossible to accurately calculate on a construction loan because the amount owed each month is not uniform an is unknown until loan servicing.

Do I need a “builder of record”? – Yes, all Texas residential construction loans need a builder of record.

Can I be my “builder of record”? – No but if you have a bonified incorporated company that will satisfy the state of Texas, but you still need a builer to satisfy the investor. Basically you cannot build your house under your name.

Why does a “builder of record” charge a fee? – Mainly because they are liable to the investor and there needs to be some income for services provided.

Does being my own builder affect what construction loans are available? – Yes, since an owner builder construction loan has the risks of a construciton and an owner builder fewer investors are willing to approve owner builder construction loans and some investors have stricter terms or qualifications. But we constantly search and look for investors with favorable terms for owner builder construction loans.

Do you offer OTC (One Time Close) owner builder construction loans? – Yes we do but there are only a few investors that offer this type of loan and the permanent loan is not fixed for the entire 15 or 30 years.

When will my monthly bill be due? – on the same day your construction loan closed. There is a 10 day grace period. The bill will be send 10 days before it is due. If you need to request a special “due” date, please request this before the loan closes.

What scores are needed to get a construction loan? 680 and above is recommended. About 70% of those with a 640 to 680 can get a construction loan. If you are a strong borrower and have lower than 650 it may be possible but the chances are much lower. Of course if you are willing to pay very high interest rates, there is always a lender as long as they can be assured their loan is secure.

What down payment is required? – Downpayment on construction loans can be confusing. Most construction loans in Texas require between 10% and 20% down. Equity in the land usually counts toward equity.

When does land “equity” not count toward downpayment? – Land equity that does not count would be if you are buying the land at a discounted price, then the difference between purchase price and land “value” would not count toward downpayment. Another case is when you bought the land 1 or more years ago at a certain price and now it is “worth” a higher price, that difference in purchase price and value will only count if the “value” is “reasonable” and shows up in the appraisal report.

How does a construction loan work? – Make sure you will qualify for a construction loan (we can help with that) then finalize your house plans, builder, and construction budget, we get an appraisal for the house/land combo and the loan closed. All construction loan funds are a reimbursement of house completition not and advance to go build, so you have to complete a portion of the house to get funds for the portion of the house completed.

Can I roll in closing costs and land payoff costs? – In most cases the land payoff is covered and the closing costs are covered by the loan. The main thing that can prevent closing costs being rolled into the loan is the loan-to-value ratio is more than 90%, we see this when the location is bad or there is a lot of cost in the budget for items not included in living square foot number. The other reason we cannot include the closing costs in the loan if we need to use one of our secondary investors that does not allow closing costs rolled into the loan.

When I get the permanent conventional loan can I also roll closing costs into the loan?
Yes, this is common and the appraised value needs to be high enough to support the extra amount.

Can I get a construction loan with $0 down? – Yes you can, if you have equity in the land or if you are willing to have a CD with the investor. But remember that $0 down is not the same as $0 in the bank. You will need to have cash reserves (usually $15,000).

Can I be my own builder? – Yes you can but you will need a contract with a builder of record (see below), plans, and a construction budget.

Is a Builder of Record needed? – In Texas all residential construction loans need a “builder of record”, but builders do not need to be registered with the state. There are state and investor requirements for builders. The state requirement is that a different entity (corporation or individual) must be the “builder of record” the investor requirement is they have to be a “reputable” builder (different investors have different definitions of “reputable” builder, a very few allow it to be your mother/brother/friend (but it does exist), and most require it to be an experienced builder with a good reputation among their subcontractors and suppliers). This means that if the investor is not familiar with the builder, then the builder will need to fill out a “builder application” that has basic info about the builder and a list of homes built and contact info for suppliers and subcontractors.

What does it take to qualify for a construction loan? –
Down payment – 10%-20% of total cost (land + construction budget + closing costs) (*some investors do not allow closing costs in budget) (again land equity usually counts toward down payment)
Reserves – 2 – 6 months of PITI for current homes/land + new home completed and taxed
Credit Score – mortgage credit score is calculated by a mortgage credit pull and using the middle score and taking the lower score if there is more than one borrower
– – – 700+ all investors accept this score
– – – 680+ most investors accept this score
– – – 660+ several investors accept this score
– – – 640+ only a few investors accept this score and the loans are looked at more carefully
Debt to Income Ratio – this ranges from 35% to 50% (again depends on the lender but most are at 38% to 43%) and is calculated by adding all you credit card minimum payment + car payments + house PITI + new house PITI + monthly payments on school loans and other loans/committments divided by monthly gross income (after expenses for self employed)
Appraised Value – the value of the house and land when the house is built is appraised by a certified appraiser must be worth more than the cost (* if the cost is more than the appraised value then the investor adjusts by lowering the loan amount)

How long does a construction loan take? – It depends on a few factors of timing and getting a complete loan package. It takes time to gather all the data of income, assets, borrower profile, property value, construction plan and contract, title, etc. Most construction loans take around 5 weeks to go from application to closing, but this assumes that there are no major delays. A rush loan can take two weeks but this leaves no room for investors, appraisers, title, broker being real busy or holidays or sickness or major problems.

Where can I get a construction loan? – We can get you a construction loan most anywhere (there are certain types of construction loans we cannot do outside Texas due to licensing). Most investors stay within a certain area or group of counties, but some investors handle all of Texas. So the construction location can affect the investor and therefore affect the construction loan terms or interest rate.

Do you handle OTC (One Time Close) construction loans? – Yes we can handle these. As with any loan there are advantages and disadvantages.

What are the advantages and disadvantages of a OTC (One Time Close) construction loan? – The advantage is you save $2500 to $5000 in closing costs for a permanent loan (* savings depends on loan amount). There is also an advantage of no or less qualifying for the permanent loan. There are “costs” for the permanent loan that are collected when the loan modifys unless they are collected up front when the construction loan closes. The disadvantages is the permanent loan is not always a 30 or 15 year fixed loan, there are 5/25 or 7/23 or 10/20 versions where the loan is fixed for 5 years and the rate adjusts for 25 years or 7 fixes / 23 adjusting or 10 fixed / 20 adjusting. The other disadvantage is that all the OTC loans I have seen have slightly higher interest rates during the permanent loan, this eats away at the saving of two closing costs. The other disadvantage is that if you want to do an owner builder loan, the only one available is the 5/25 or 7/23 or 10/20 construction/fixed/adjusting loans. So the OTC is perfect for the person planning to be in the loan less than 5 or 10 years, but not so good for those in the permanent loan long term.

Do you handle TTC (Two Time Close) construction loans? – Yes we can handle these. As with any loan there are advantages and disadvantages.

What is the application / underwriting / paperwork process? – The process is as follows …

1. Fill out and send us a construction application
2. (Prequalification is $75 and optional …We pull your credit and do DTI calculation and LTV calculation and send file to underwriter for boarder line issues)
3. You finalize your house plans (plans should take between 3 weeks and 2 months)
4. We send you fully typed loan application and disclosures to sign and return
5. You send us income, bank, and other documents related to the contract, budget, property and loan
6. If buying land with the transaction then you send us land purchase contract (it is recommended to put a 60 day (or longer) close date for the land close
7. You send us a check for the appraisal and application (application fee refunded when loan closes) (some builders do appraisal after construction budget step) (appraisal takes 5-10 work days)
8. You send us builders contract
9. You send us 1-3 page construction budget
10. We but all the loan information together and package it up for investors
11. We submit to our investor’s underwriters (it sits there 1-5 days)
12. Underwriters send us loan conditions and we contact you
13. We gather conditions from you & title & appraiser & your employer & payoff information (this takes 2-3 days)
14. Underwriter submits for review of final approval (this takes 1-2 weeks)
15. Title and investor prepares closing document (this takes 1-3 days)
16. We schedule date and time for closing and let you know the final closing costs along with the amount of check to bring, if any
17. You normally see the HUD settlement statement the day before closing
18. You come to closing with spouse and sign final loan documents and agreements
19. Bring bank check (made out to title company) or wire money to title company for cash to close, if any
20. Bring drivers license for all borrowers and spouses
21. Loan is normally funded that day or the next

I am still not clear on some things. I am anticipating $170,000 for construction of the home. I paid $41,000 for the land and owe $32,000 on the land loan. How should I figure out the amount of construction loan I can get?
Most investors allow you to add closing costs, but you have to add it to the budget. for your example…
$170k const + $32k land + 8k closing costs = $210k remaining closing costs
$170k const + 41k cost of land + 8k Closing costs = $219k total costs
90% of total costs = $197,100 loan amount – down payment is $13k
85% of total costs = $186,150 loan amount – down payment is $24k

When closing the permanent loan will construction cost and the remaining balance on the land (32K) will be rolled into a conventional mortgage?
Yes but the land is also rolled into the construction loan. Remember there is the OTC (One Time Clost) and TTC (Two Time Close) options. With the TTC there is a construction loan and a permanent conventional mortgage. The construction loan is not a conventional mortgage but a 12 month mortgage.

If we do roll these closing costs into the loan (assuming this is possible), can this still be done so that I don’t have to use 20k at closing?
We because you will have to have at least 10% “skin in the game” and your current “skin in the game” is $9000 ($41k – $32k) you will need to bring some more money as a down payment or “skin in the game” to the construction loan… around $13k is my guess.

We don’t quite understand the cash outlay we should be anticipating prior to the construction loan, the amount we should be spending out of pocket during the construction loan process, and what we should anticipate bringing to the table at closing. Can you shed some light on this for us?
Cash outlay is approximately this
House Plans – $3000 – $5000
Soil Testing – $0 – $1000 (builder dependent)
Builder Startup/Deposit – $0 to 20% (builder dependent)
Construction Appraisal – $600 for loan appraisal / application
Construction close – $0-20% for down payment at construction close
Construction close – closing costs – is possible to roll into loan
Permanent close or modification for OTC – closing costs – is possible to roll into loan

For a OTC (One Time Close) I don’t undershand how there could be any costs associated with the permenant loan? Please explain.
The permenant loan has a modification at the time the house is finished and the permanent rate is set. Different investors have different fees at “modification” time. Usually the investor is keeping this loan but more likely if it is a 15 or 30 year fixed loan then they are selling the loan and making 1% – 2% when sold depending on what interest rate the loan is at. Here are some possible OTC perm loan fees…
– $300 to $500 modification fee
– 0.25% of loan amount escrow waiver fee if you are not escrowing taxes and insurance monthly with the lender
– 2 to15 months of taxes or hazard insurance for the reserves if you are escrowing taxes and insurance monthly with the lender. the big variance in the amount of months taken depends on how soon the taxes or hazard insurance is due.
-$0 to $250 for mortgage insurance (but this is a rare circumstance)
– $329 Title modification fee (but this is a rare circumstance on a OTC)

When can I “lock the interest rate” of the permanent loan rate? –
Locks on 15 & 30 year fixed loans ….
Fannie / Freddie “lenders” have 15, 30, 45, 60, 90, etc locks
30 day locks are “free”
Sometimes a 15 day lock will yield a 1/8 point better rate

Remember when converting a construction loan to a permanent loan there is a “3 day right of rescission” that actually takes 5 days (not including Sundays). This has the effect of making a 30 day lock a 25 day lock.

45,60,90,+ day locks have a “cost” associated with them
The longer the lock the higher the cost
This differs from lender to lender
This must be paid for in advance
This is not refundable
This does not guarantee the loan

One lender’s fees …
60 – 0.7% in fees
90 – 0.25 in rate and 0.5% in fees
120 – 0.375 in rate and 0.8% in fees
240 – 0.625 in rate and 1.3% in fees

You mentioned a number of requirements of the construction lender as to upfront payments, and some variables.  I wasn’t able to make notes.  I know we can’t really have an accurate discussion until we get the appraisal back and review it relative to value of the lot we own free and clear, plus $18K we’ve already paid, plus $288K construction budget and $14K contingency going forward.  But in general, if you could please outline what you had mentioned about 20% down payment, buying a CD ahead of time, etc., that would be helpful. With the lender in your particular area that handles owner builder construction loan …. take lower of total cost of land & construction, then you have two options…

1. take 80% of that amount, that will be the loan amount, the rest you need to pay for

2. take 85% of that amount, the interest rate is 0.5% higher, that will be the loan amount, the rest you need to pay for (P.S. this requires approval by lender)

(PS if you bring $ and place in CD with lender you can increase the  construction loan amount by the amount of the CD)

One Owner Builder Adjusters to Interest Rate

You mentioned that the construction lender requires that the amount of the loan be as great or greater than the amount of loan on the perm.  In dollars or percentage LTV?  I was under the impression from previous discussions with construction lenders that the exact amount of the perm could be decided later.  We do prefer to have at least 20% downpayment for the perm to avoid PMI, but I didn’t think that we had to make that decision now. Please elaborate? It is typically advisable to make sure the construction loan is equal or greater than the desired permanent loan. The reason for this is because if the permanent loan is larger than the construction loan then it is technically a “cash out” loan which runs into fee problems and problems when you get above 80% of appraised value and a higher rate since lenders consider cash out loans to be higher risk. Both the permanent and the construction loan is evaluated before the construction loan closes, and both must “work” from the beginning (in other words there needs to be a “home” for the permanent loan at the start of the construction loan. Yes, the numbers (appraisal, amount borrowed, interest rate) will change after 6-7 months of construction, so they will need to be recalculated when preparing the permanent loan.

OWNER BUILDER

Want to be your Own Builder / General Contractor? This is a very tough loan to get in Texas and we know where to get this tough loan and where the good and bad investors are.

What interest rates are available?Currently rates range from 5.0% to 7.0% depending on location and strength of borrower. Most loans we close are in the 5.0% to 5.75%. APR is in the 9% to $14% rate. The APR is much higher because construction loans have additional fees on the borrower and mainly because the loan is spread out over 1 year verses 30 years. But APR is almost impossible to accurately calculate on a construction loan because the amount owed each month is not uniform an is unknown until loan servicing.

Do I need a “builder of record”? – Yes, all Texas residential construction loans need a builder of record.

Can I be my “builder of record”? – No but if you have a bonified incorporated company that will satisfy the state of Texas, but you still need a builer to satisfy the investor. Basically you cannot build your house under your name.

Why does a “builder of record” charge a fee? – Mainly because they are liable to the investor and there needs to be some income for services provided.

Does being my own builder affect what construction loans are available? – Yes, since an owner builder construction loan has the risks of a construciton and an owner builder fewer investors are willing to approve owner builder construction loans and some investors have stricter terms or qualifications. But we constantly search and look for investors with favorable terms for owner builder construction loans.

Do you offer OTC (One Time Close) owner builder construction loans? – Yes we do but there are only a few investors that offer this type of loan and the permanent loan is not fixed for the entire 15 or 30 years.

When will my monthly bill be due? – on the same day your construction loan closed. There is a 10 day grace period. The bill will be send 10 days before it is due. If you need to request a special “due” date, please request this before the loan closes.

What scores are needed to get a construction loan? 680 and above is recommended. About 70% of those with a 640 to 680 can get a construction loan. If you are a strong borrower and have lower than 650 it may be possible but the chances are much lower. Of course if you are willing to pay very high interest rates, there is always a lender as long as they can be assured their loan is secure.

What down payment is required? – Downpayment on construction loans can be confusing. Most construction loans in Texas require between 10% and 20% down. Equity in the land usually counts toward equity.

When does land “equity” not count toward downpayment? – Land equity that does not count would be if you are buying the land at a discounted price, then the difference between purchase price and land “value” would not count toward downpayment. Another case is when you bought the land 1 or more years ago at a certain price and now it is “worth” a higher price, that difference in purchase price and value will only count if the “value” is “reasonable” and shows up in the appraisal report.

How does a construction loan work? – Make sure you will qualify for a construction loan (we can help with that) then finalize your house plans, builder, and construction budget, we get an appraisal for the house/land combo and the loan closed. All construction loan funds are a reimbursement of house completition not and advance to go build, so you have to complete a portion of the house to get funds for the portion of the house completed.

Can I roll in closing costs and land payoff costs? – In most cases the land payoff is covered and the closing costs are covered by the loan. The main thing that can prevent closing costs being rolled into the loan is the loan-to-value ratio is more than 90%, we see this when the location is bad or there is a lot of cost in the budget for items not included in living square foot number. The other reason we cannot include the closing costs in the loan if we need to use one of our secondary investors that does not allow closing costs rolled into the loan.

When I get the permanent conventional loan can I also roll closing costs into the loan?
Yes, this is common and the appraised value needs to be high enough to support the extra amount.

Can I get a construction loan with $0 down? – Yes you can, if you have equity in the land or if you are willing to have a CD with the investor. But remember that $0 down is not the same as $0 in the bank. You will need to have cash reserves (usually $15,000).

Can I be my own builder? – Yes you can but you will need a contract with a builder of record (see below), plans, and a construction budget.

Is a Builder of Record needed? – In Texas all residential construction loans need a “builder of record”, but builders do not need to be registered with the state. There are state and investor requirements for builders. The state requirement is that a different entity (corporation or individual) must be the “builder of record” the investor requirement is they have to be a “reputable” builder (different investors have different definitions of “reputable” builder, a very few allow it to be your mother/brother/friend (but it does exist), and most require it to be an experienced builder with a good reputation among their subcontractors and suppliers). This means that if the investor is not familiar with the builder, then the builder will need to fill out a “builder application” that has basic info about the builder and a list of homes built and contact info for suppliers and subcontractors.

What does it take to qualify for a construction loan? –
Down payment – 10%-20% of total cost (land + construction budget + closing costs) (*some investors do not allow closing costs in budget) (again land equity usually counts toward down payment)
Reserves – 2 – 6 months of PITI for current homes/land + new home completed and taxed
Credit Score – mortgage credit score is calculated by a mortgage credit pull and using the middle score and taking the lower score if there is more than one borrower
– – – 700+ all investors accept this score
– – – 680+ most investors accept this score
– – – 660+ several investors accept this score
– – – 640+ only a few investors accept this score and the loans are looked at more carefully
Debt to Income Ratio – this ranges from 35% to 50% (again depends on the lender but most are at 38% to 43%) and is calculated by adding all you credit card minimum payment + car payments + house PITI + new house PITI + monthly payments on school loans and other loans/committments divided by monthly gross income (after expenses for self employed)
Appraised Value – the value of the house and land when the house is built is appraised by a certified appraiser must be worth more than the cost (* if the cost is more than the appraised value then the investor adjusts by lowering the loan amount)

How long does a construction loan take? – It depends on a few factors of timing and getting a complete loan package. It takes time to gather all the data of income, assets, borrower profile, property value, construction plan and contract, title, etc. Most construction loans take around 5 weeks to go from application to closing, but this assumes that there are no major delays. A rush loan can take two weeks but this leaves no room for investors, appraisers, title, broker being real busy or holidays or sickness or major problems.

Where can I get a construction loan? – We can get you a construction loan most anywhere (there are certain types of construction loans we cannot do outside Texas due to licensing). Most investors stay within a certain area or group of counties, but some investors handle all of Texas. So the construction location can affect the investor and therefore affect the construction loan terms or interest rate.

Do you handle OTC (One Time Close) construction loans? – Yes we can handle these. As with any loan there are advantages and disadvantages.

What are the advantages and disadvantages of a OTC (One Time Close) construction loan? – The advantage is you save $2500 to $5000 in closing costs for a permanent loan (* savings depends on loan amount). There is also an advantage of no or less qualifying for the permanent loan. There are “costs” for the permanent loan that are collected when the loan modifys unless they are collected up front when the construction loan closes. The disadvantages is the permanent loan is not always a 30 or 15 year fixed loan, there are 5/25 or 7/23 or 10/20 versions where the loan is fixed for 5 years and the rate adjusts for 25 years or 7 fixes / 23 adjusting or 10 fixed / 20 adjusting. The other disadvantage is that all the OTC loans I have seen have slightly higher interest rates during the permanent loan, this eats away at the saving of two closing costs. The other disadvantage is that if you want to do an owner builder loan, the only one available is the 5/25 or 7/23 or 10/20 construction/fixed/adjusting loans. So the OTC is perfect for the person planning to be in the loan less than 5 or 10 years, but not so good for those in the permanent loan long term.

Do you handle TTC (Two Time Close) construction loans? – Yes we can handle these. As with any loan there are advantages and disadvantages.

What is the application / underwriting / paperwork process? – The process is as follows …

1. Fill out and send us a construction application
2. (Prequalification is $75 and optional …We pull your credit and do DTI calculation and LTV calculation and send file to underwriter for boarder line issues)
3. You finalize your house plans (plans should take between 3 weeks and 2 months)
4. We send you fully typed loan application and disclosures to sign and return
5. You send us income, bank, and other documents related to the contract, budget, property and loan
6. If buying land with the transaction then you send us land purchase contract (it is recommended to put a 60 day (or longer) close date for the land close
7. You send us a check for the appraisal and application (application fee refunded when loan closes) (some builders do appraisal after construction budget step) (appraisal takes 5-10 work days)
8. You send us builders contract
9. You send us 1-3 page construction budget
10. We but all the loan information together and package it up for investors
11. We submit to our investor’s underwriters (it sits there 1-5 days)
12. Underwriters send us loan conditions and we contact you
13. We gather conditions from you & title & appraiser & your employer & payoff information (this takes 2-3 days)
14. Underwriter submits for review of final approval (this takes 1-2 weeks)
15. Title and investor prepares closing document (this takes 1-3 days)
16. We schedule date and time for closing and let you know the final closing costs along with the amount of check to bring, if any
17. You normally see the HUD settlement statement the day before closing
18. You come to closing with spouse and sign final loan documents and agreements
19. Bring bank check (made out to title company) or wire money to title company for cash to close, if any
20. Bring drivers license for all borrowers and spouses
21. Loan is normally funded that day or the next

I am still not clear on some things. I am anticipating $170,000 for construction of the home. I paid $41,000 for the land and owe $32,000 on the land loan. How should I figure out the amount of construction loan I can get?
Most investors allow you to add closing costs, but you have to add it to the budget. for your example…
$170k const + $32k land + 8k closing costs = $210k remaining closing costs
$170k const + 41k cost of land + 8k Closing costs = $219k total costs
90% of total costs = $197,100 loan amount – down payment is $13k
85% of total costs = $186,150 loan amount – down payment is $24k

When closing the permanent loan will construction cost and the remaining balance on the land (32K) will be rolled into a conventional mortgage?
Yes but the land is also rolled into the construction loan. Remember there is the OTC (One Time Clost) and TTC (Two Time Close) options. With the TTC there is a construction loan and a permanent conventional mortgage. The construction loan is not a conventional mortgage but a 12 month mortgage.

If we do roll these closing costs into the loan (assuming this is possible), can this still be done so that I don’t have to use 20k at closing?
We because you will have to have at least 10% “skin in the game” and your current “skin in the game” is $9000 ($41k – $32k) you will need to bring some more money as a down payment or “skin in the game” to the construction loan… around $13k is my guess.

We don’t quite understand the cash outlay we should be anticipating prior to the construction loan, the amount we should be spending out of pocket during the construction loan process, and what we should anticipate bringing to the table at closing. Can you shed some light on this for us?
Cash outlay is approximately this
House Plans – $3000 – $5000
Soil Testing – $0 – $1000 (builder dependent)
Builder Startup/Deposit – $0 to 20% (builder dependent)
Construction Appraisal – $600 for loan appraisal / application
Construction close – $0-20% for down payment at construction close
Construction close – closing costs – is possible to roll into loan
Permanent close or modification for OTC – closing costs – is possible to roll into loan

For a OTC (One Time Close) I don’t undershand how there could be any costs associated with the permenant loan? Please explain.
The permenant loan has a modification at the time the house is finished and the permanent rate is set. Different investors have different fees at “modification” time. Usually the investor is keeping this loan but more likely if it is a 15 or 30 year fixed loan then they are selling the loan and making 1% – 2% when sold depending on what interest rate the loan is at. Here are some possible OTC perm loan fees…
– $300 to $500 modification fee
– 0.25% of loan amount escrow waiver fee if you are not escrowing taxes and insurance monthly with the lender
– 2 to15 months of taxes or hazard insurance for the reserves if you are escrowing taxes and insurance monthly with the lender. the big variance in the amount of months taken depends on how soon the taxes or hazard insurance is due.
-$0 to $250 for mortgage insurance (but this is a rare circumstance)
– $329 Title modification fee (but this is a rare circumstance on a OTC)

When can I “lock the interest rate” of the permanent loan rate? –
Locks on 15 & 30 year fixed loans ….
Fannie / Freddie “lenders” have 15, 30, 45, 60, 90, etc locks
30 day locks are “free”
Sometimes a 15 day lock will yield a 1/8 point better rate

Remember when converting a construction loan to a permanent loan there is a “3 day right of rescission” that actually takes 5 days (not including Sundays). This has the effect of making a 30 day lock a 25 day lock.

45,60,90,+ day locks have a “cost” associated with them
The longer the lock the higher the cost
This differs from lender to lender
This must be paid for in advance
This is not refundable
This does not guarantee the loan

One lender’s fees …
60 – 0.7% in fees
90 – 0.25 in rate and 0.5% in fees
120 – 0.375 in rate and 0.8% in fees
240 – 0.625 in rate and 1.3% in fees

You mentioned a number of requirements of the construction lender as to upfront payments, and some variables.  I wasn’t able to make notes.  I know we can’t really have an accurate discussion until we get the appraisal back and review it relative to value of the lot we own free and clear, plus $18K we’ve already paid, plus $288K construction budget and $14K contingency going forward.  But in general, if you could please outline what you had mentioned about 20% down payment, buying a CD ahead of time, etc., that would be helpful. With the lender in your particular area that handles owner builder construction loan …. take lower of total cost of land & construction, then you have two options…

1. take 80% of that amount, that will be the loan amount, the rest you need to pay for

2. take 85% of that amount, the interest rate is 0.5% higher, that will be the loan amount, the rest you need to pay for (P.S. this requires approval by lender)

(PS if you bring $ and place in CD with lender you can increase the  construction loan amount by the amount of the CD)

One Owner Builder Adjusters to Interest Rate

You mentioned that the construction lender requires that the amount of the loan be as great or greater than the amount of loan on the perm.  In dollars or percentage LTV?  I was under the impression from previous discussions with construction lenders that the exact amount of the perm could be decided later.  We do prefer to have at least 20% downpayment for the perm to avoid PMI, but I didn’t think that we had to make that decision now. Please elaborate? It is typically advisable to make sure the construction loan is equal or greater than the desired permanent loan. The reason for this is because if the permanent loan is larger than the construction loan then it is technically a “cash out” loan which runs into fee problems and problems when you get above 80% of appraised value and a higher rate since lenders consider cash out loans to be higher risk. Both the permanent and the construction loan is evaluated before the construction loan closes, and both must “work” from the beginning (in other words there needs to be a “home” for the permanent loan at the start of the construction loan. Yes, the numbers (appraisal, amount borrowed, interest rate) will change after 6-7 months of construction, so they will need to be recalculated when preparing the permanent loan.

OWNER BUILDER

Want to be your Own Builder / General Contractor? This is a very tough loan to get in Texas and we know where to get this tough loan and where the good and bad investors are.

What interest rates are available?Currently rates range from 5.0% to 7.0% depending on location and strength of borrower. Most loans we close are in the 5.0% to 5.75%. APR is in the 9% to $14% rate. The APR is much higher because construction loans have additional fees on the borrower and mainly because the loan is spread out over 1 year verses 30 years. But APR is almost impossible to accurately calculate on a construction loan because the amount owed each month is not uniform an is unknown until loan servicing.

Do I need a “builder of record”? – Yes, all Texas residential construction loans need a builder of record.

Can I be my “builder of record”? – No but if you have a bonified incorporated company that will satisfy the state of Texas, but you still need a builer to satisfy the investor. Basically you cannot build your house under your name.

Why does a “builder of record” charge a fee? – Mainly because they are liable to the investor and there needs to be some income for services provided.

Does being my own builder affect what construction loans are available? – Yes, since an owner builder construction loan has the risks of a construciton and an owner builder fewer investors are willing to approve owner builder construction loans and some investors have stricter terms or qualifications. But we constantly search and look for investors with favorable terms for owner builder construction loans.

Do you offer OTC (One Time Close) owner builder construction loans? – Yes we do but there are only a few investors that offer this type of loan and the permanent loan is not fixed for the entire 15 or 30 years.

When will my monthly bill be due? – on the same day your construction loan closed. There is a 10 day grace period. The bill will be send 10 days before it is due. If you need to request a special “due” date, please request this before the loan closes.

What scores are needed to get a construction loan? 680 and above is recommended. About 70% of those with a 640 to 680 can get a construction loan. If you are a strong borrower and have lower than 650 it may be possible but the chances are much lower. Of course if you are willing to pay very high interest rates, there is always a lender as long as they can be assured their loan is secure.