Anyone have experience/knowledge of Construction to Principle Loans?

 
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DaMuleRules
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PostPosted: Thu Oct 26, 2017 5:06 pm    Post subject: Anyone have experience/knowledge of Construction to Principle Loans?

We are considering building a custom home on a piece of land we own and are figuring out our best logistical options. We could actually afford to pay the construction costs ourselves, but I'm not sure I want to burn through that money if we have better options. Sure, we would have a huge amount of instant equity once the house was complete, but that is not the same as having liquid assets.

I have heard of loans called "construction to principle loans" in which you finance the construction phase, and when construction is completed the construction loan rolls into a mortgage - the advantage being that you only have to do one loan as opposed to getting a construction loan and then go out and get a home loan separately - one stop shopping in a sense.

I've googled info about them, but don't really get much detailed information.

Does anyone here know about those things?
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PostPosted: Thu Oct 26, 2017 5:08 pm    Post subject:

LG Financial Gurus assemble! *drops bucket of blood into water*
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PostPosted: Thu Oct 26, 2017 5:12 pm    Post subject:

I may be wrong but I just asked someone I know who deals with things like this, basically the cons are that you need to be approved twice and pay closing costs twice, there's the risk if your financial circumstances change, if you don't get approved for permanent financing, could be forclosed.
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JerryMagicKobe
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PostPosted: Thu Oct 26, 2017 5:24 pm    Post subject: Re: Anyone have experience/knowledge of Construction to Principle Loans?

DaMuleRules wrote:
We are considering building a custom home on a piece of land we own and are figuring out our best logistical options. We could actually afford to pay the construction costs ourselves, but I'm not sure I want to burn through that money if we have better options. Sure, we would have a huge amount of instant equity once the house was complete, but that is not the same as having liquid assets.

I have heard of loans called "construction to principle loans" in which you finance the construction phase, and when construction is completed the construction loan rolls into a mortgage - the advantage being that you only have to do one loan as opposed to getting a construction loan and then go out and get a home loan separately - one stop shopping in a sense.

I've googled info about them, but don't really get much detailed information.

Does anyone here know about those things?

Huge project, my friend.
Do you own the land? Has it been subdivided? Are the utilities at the street (are there streets)? Are there plans and have they been approved yet?
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DaMuleRules
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PostPosted: Thu Oct 26, 2017 5:27 pm    Post subject:

rwongega wrote:
I may be wrong but I just asked someone I know who deals with things like this, basically the cons are that you need to be approved twice and pay closing costs twice, there's the risk if your financial circumstances change, if you don't get approved for permanent financing, could be forclosed.


That's true, but I am talking about a type of loan that is all pre-approved for both processes and don't pay the closing costs twice. They are not common (which is probably why I am not getting detailed info), but they exist with some lenders.
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You thought God was an architect, now you know
He’s something like a pipe bomb ready to blow
And everything you built that’s all for show
goes up in flames
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PostPosted: Thu Oct 26, 2017 5:29 pm    Post subject: Re: Anyone have experience/knowledge of Construction to Principle Loans?

JerryMagicKobe wrote:
DaMuleRules wrote:
We are considering building a custom home on a piece of land we own and are figuring out our best logistical options. We could actually afford to pay the construction costs ourselves, but I'm not sure I want to burn through that money if we have better options. Sure, we would have a huge amount of instant equity once the house was complete, but that is not the same as having liquid assets.

I have heard of loans called "construction to principle loans" in which you finance the construction phase, and when construction is completed the construction loan rolls into a mortgage - the advantage being that you only have to do one loan as opposed to getting a construction loan and then go out and get a home loan separately - one stop shopping in a sense.

I've googled info about them, but don't really get much detailed information.

Does anyone here know about those things?

Huge project, my friend.
Do you own the land? Has it been subdivided? Are the utilities at the street (are there streets)? Are there plans and have they been approved yet?

Yes, we own the land outright. Utilities and water at the street - surveyed and approved for a septic system. We don't have plans and would (hopefully) work with an architect we like from the area where the land is.
_________________
You thought God was an architect, now you know
He’s something like a pipe bomb ready to blow
And everything you built that’s all for show
goes up in flames
In 24 frames


Jason Isbell

Man, do those lyrics resonate right now
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DaMuleRules
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PostPosted: Thu Oct 26, 2017 5:32 pm    Post subject:

I should add that we are also considering simply buying a house in the area and possibly selling the land. But like the idea of building our house exactly the way we'd like it rather than face a big remodel if we bought.
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You thought God was an architect, now you know
He’s something like a pipe bomb ready to blow
And everything you built that’s all for show
goes up in flames
In 24 frames


Jason Isbell

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JerryMagicKobe
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PostPosted: Thu Oct 26, 2017 6:00 pm    Post subject: Re: Anyone have experience/knowledge of Construction to Principle Loans?

DaMuleRules wrote:
JerryMagicKobe wrote:
DaMuleRules wrote:
We are considering building a custom home on a piece of land we own and are figuring out our best logistical options. We could actually afford to pay the construction costs ourselves, but I'm not sure I want to burn through that money if we have better options. Sure, we would have a huge amount of instant equity once the house was complete, but that is not the same as having liquid assets.

I have heard of loans called "construction to principle loans" in which you finance the construction phase, and when construction is completed the construction loan rolls into a mortgage - the advantage being that you only have to do one loan as opposed to getting a construction loan and then go out and get a home loan separately - one stop shopping in a sense.

I've googled info about them, but don't really get much detailed information.

Does anyone here know about those things?

Huge project, my friend.
Do you own the land? Has it been subdivided? Are the utilities at the street (are there streets)? Are there plans and have they been approved yet?

Yes, we own the land outright. Utilities and water at the street - surveyed and approved for a septic system. We don't have plans and would (hopefully) work with an architect we like from the area where the land is.
At this point I would consult with an architect to narrow down what you want and gain an understanding for the costs and time frames for each step. Once you have a basic idea, find out your financing options. The architect can probably refer you to contractor and lenders they have worked with, which is helpful considering there are few remaining lenders who offer construction and construction to permanent financing. I would probably start with US Bank. There are others, but this segment of the mortgage market is extremely small, and these loans carry a higher degree of risk and are often set up as a short term (1 year or less) variable rate line of credit tied to prime.
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PostPosted: Thu Oct 26, 2017 6:10 pm    Post subject: Re: Anyone have experience/knowledge of Construction to Principle Loans?

JerryMagicKobe wrote:
DaMuleRules wrote:
JerryMagicKobe wrote:
DaMuleRules wrote:
We are considering building a custom home on a piece of land we own and are figuring out our best logistical options. We could actually afford to pay the construction costs ourselves, but I'm not sure I want to burn through that money if we have better options. Sure, we would have a huge amount of instant equity once the house was complete, but that is not the same as having liquid assets.

I have heard of loans called "construction to principle loans" in which you finance the construction phase, and when construction is completed the construction loan rolls into a mortgage - the advantage being that you only have to do one loan as opposed to getting a construction loan and then go out and get a home loan separately - one stop shopping in a sense.

I've googled info about them, but don't really get much detailed information.

Does anyone here know about those things?

Huge project, my friend.
Do you own the land? Has it been subdivided? Are the utilities at the street (are there streets)? Are there plans and have they been approved yet?

Yes, we own the land outright. Utilities and water at the street - surveyed and approved for a septic system. We don't have plans and would (hopefully) work with an architect we like from the area where the land is.
At this point I would consult with an architect to narrow down what you want and gain an understanding for the costs and time frames for each step. Once you have a basic idea, find out your financing options. The architect can probably refer you to contractor and lenders they have worked with, which is helpful considering there are few remaining lenders who offer construction and construction to permanent financing. I would probably start with US Bank. There are others, but this segment of the mortgage market is extremely small, and these loans carry a higher degree of risk and are often set up as a short term (1 year or less) variable rate line of credit tied to prime.


Yeah, one thing I have found out is the time limits on the construction portion - which raises a bit of concern due to potential construction delays.

It's a daunting prospect for sure, hence the research part going in. The idea of designing our own home is something I have long thought of. I almost went into architecture in college and worked for an architect in high school. I have actually done a couple of conceptual designs for look and layout. So in an ideal world we'd go that route. Just not sure if it is wise and worth it.
_________________
You thought God was an architect, now you know
He’s something like a pipe bomb ready to blow
And everything you built that’s all for show
goes up in flames
In 24 frames


Jason Isbell

Man, do those lyrics resonate right now
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JerryMagicKobe
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PostPosted: Thu Oct 26, 2017 6:13 pm    Post subject:

DaMuleRules wrote:
I should add that we are also considering simply buying a house in the area and possibly selling the land. But like the idea of building our house exactly the way we'd like it rather than face a big remodel if we bought.
.
Building a house is a huge project. It will take longer, cost more and be infinitely more difficult than you would guess when starting out.
Owning land is speculative and semi-illiquid due to the current dearth of financing options. If you do sell the land, you will be hoping for a cash buyer, but probably settling on carrying the note (50% down, 5-10 year term at prime plus 3 or so). It may be worth it to hold on to the land long enough to allow more lenders to resume financing raw land. While waiting, I would spend the cash to get plans approved by the city, especially if you find an architect you like. Getting the plans approved will save your buyer the time and headache, which will make it easier for them to find financing making it easier for you to get your price.
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PostPosted: Thu Oct 26, 2017 6:59 pm    Post subject:

JerryMagicKobe wrote:
DaMuleRules wrote:
I should add that we are also considering simply buying a house in the area and possibly selling the land. But like the idea of building our house exactly the way we'd like it rather than face a big remodel if we bought.
.
Building a house is a huge project. It will take longer, cost more and be infinitely more difficult than you would guess when starting out.
Owning land is speculative and semi-illiquid due to the current dearth of financing options. If you do sell the land, you will be hoping for a cash buyer, but probably settling on carrying the note (50% down, 5-10 year term at prime plus 3 or so). It may be worth it to hold on to the land long enough to allow more lenders to resume financing raw land. While waiting, I would spend the cash to get plans approved by the city, especially if you find an architect you like. Getting the plans approved will save your buyer the time and headache, which will make it easier for them to find financing making it easier for you to get your price.


All of this. Also, if you would prefer to have a mortgage and keep your cash, you could essentially loan yourself the money short term and then finance the completed house, which, if I understand your location (), should not be difficult.
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DaMuleRules
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PostPosted: Thu Oct 26, 2017 7:14 pm    Post subject:

JerryMagicKobe wrote:
DaMuleRules wrote:
I should add that we are also considering simply buying a house in the area and possibly selling the land. But like the idea of building our house exactly the way we'd like it rather than face a big remodel if we bought.
.
Building a house is a huge project. It will take longer, cost more and be infinitely more difficult than you would guess when starting out.


I'm fairly familiar with the intricacies and have a couple of friends who are contractors who specialize in home building, so I know what I would be getting into for the most part. And I certainly know enough to be wary of the prospect if not fully committed and with all the ducks in a row going in.

Quote:
Owning land is speculative and semi-illiquid due to the current dearth of financing options. If you do sell the land, you will be hoping for a cash buyer, but probably settling on carrying the note (50% down, 5-10 year term at prime plus 3 or so). It may be worth it to hold on to the land long enough to allow more lenders to resume financing raw land. While waiting, I would spend the cash to get plans approved by the city, especially if you find an architect you like. Getting the plans approved will save your buyer the time and headache, which will make it easier for them to find financing making it easier for you to get your price.


The nice thing about the property we own is that it is in an area where there is an absolute finite amount of buildable land and it is an asset we can afford to hold onto as long as we'd like. So if we sell, it will definitely be when the right situation exists.
_________________
You thought God was an architect, now you know
He’s something like a pipe bomb ready to blow
And everything you built that’s all for show
goes up in flames
In 24 frames


Jason Isbell

Man, do those lyrics resonate right now
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DaMuleRules
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PostPosted: Thu Oct 26, 2017 7:27 pm    Post subject:

Omar Little wrote:
JerryMagicKobe wrote:
DaMuleRules wrote:
I should add that we are also considering simply buying a house in the area and possibly selling the land. But like the idea of building our house exactly the way we'd like it rather than face a big remodel if we bought.
.
Building a house is a huge project. It will take longer, cost more and be infinitely more difficult than you would guess when starting out.
Owning land is speculative and semi-illiquid due to the current dearth of financing options. If you do sell the land, you will be hoping for a cash buyer, but probably settling on carrying the note (50% down, 5-10 year term at prime plus 3 or so). It may be worth it to hold on to the land long enough to allow more lenders to resume financing raw land. While waiting, I would spend the cash to get plans approved by the city, especially if you find an architect you like. Getting the plans approved will save your buyer the time and headache, which will make it easier for them to find financing making it easier for you to get your price.


All of this. Also, if you would prefer to have a mortgage and keep your cash, you could essentially loan yourself the money short term and then finance the completed house, which, if I understand your location (), should not be difficult.


You may be familiar with it. I'm not entirely decided which I would prefer at this point in regards to where my money is or isn't. At this point, as my financial future in regards to retirement is becoming more clear, it's really about maintaining a balance between keeping options open and enjoying the fruits as much as possible.
_________________
You thought God was an architect, now you know
He’s something like a pipe bomb ready to blow
And everything you built that’s all for show
goes up in flames
In 24 frames


Jason Isbell

Man, do those lyrics resonate right now
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