Construction Loan Please help me understand (Houston, Howe: mortgage, refinance, credit)

[axg275]

Hello All,

I have been trying to buy a house without success. So I was thinking of having a builder who's work I like build on a lot that I like. I have a question for you guys/gals.

** The builder had told me that construction would run me from 89 - 75 $/sq foot depending on upgrades. ( any suggestions that you might have about this point?)

** $29,000 for all the architectural and engineering plans ( don't know if this is a good price) he had told me that plans alone worth more than half of that. (Is this money same as Soft Cost?)

** I would have to purchase a lot which would run me about $120,000

*** My assumption now is that all in all this house would cost me = 120,000 (land) + 29,000(achic/engineer plans) + sq foot * (89$/sq foot) (Hard cost)

Is this estimate real? I have been reading on the internet that i would have to pay interest payments during the construction on the construction expenditures. So I was not clear if my estimate of total house cost is too conservative.

Any suggestions or recommendations would be greatly appreciated.


Thank you very much!

Alex

[predatorprey]

29,000 for seems really really high.
Lot that just depends where you buy the land...

I'd talk to multiple builders and get them to outline the costs and negotiate from there.

Builders are crying for work and You may be able to get good deals/incentives.

[axg275]

predatorprey what do you think a good number is?

Thanks and thanks for advice of checking with other builders. I will defiantly do that.

Thanks again

Alex

[desertsun41]

First of all I think your crazy to buy a home how as they continue to lose value. 2nd I think your crazy to go thought all the stress and trouble of building when there are a hundred thousand homes on the market to choose from. Boom, instant move in within 30 days.

Do you really really really want all that stress? If you knew what was involved you might change your mind.

Were is there a lot in the Houston area worth 120K? Must be quite the prime location. In this area we have something some other areas in the country do not have. It's called "Your land is your down payment". If you buy the land or already own it outright then a lender (if there are any left) will consider that your total down payment and then you can then apply for a mortgage without having to put anymore down.

It is best to use a local builder who advertises "Build on your lot" as they already have working relationships with lenders who know how to do these specific loans.

I will skip much here for the sake of boring some.

You DO NOT make any monthly payments during the construction process no matter how long it takes to build. The builder takes % draws as the building process goes on. In the end you will pay interest on the draws for the time they were used.

There are no architectural fees paid by you if you use one of the builders plans. If you bring him one of those home plan books and say build this then yes they will charge up to 10% of the cost of the home. So dont do it. The price they quoted you is not so bad at all, $75-85sf. That is a basic home with no frills. From there the price leaps in bounds upward.

That is a short version. Go to a "Build on your lot" builder. The largest one Jim Walter homes has bit the dust after 50 years. Take a look at Tilson Homes or David Weekly is good but very expensive and dont like to build smaller homes. Look at Wyatt Construction as I have seen their work and they build average homes. Maybe give Wilshire Homes a look too.

Good luck

[City Love]

Originally Posted by desertsun41

First of all I think your crazy to buy a home how as they continue to lose value. 2nd I think your crazy to go thought all the stress and trouble of building when there are a hundred thousand homes on the market to choose from. Boom, instant move in within 30 days.

Do you really really really want all that stress? If you knew what was involved you might change your mind.

Were is there a lot in the Houston area worth 120K? Must be quite the prime location. In this area we have something some other areas in the country do not have. It's called "Your land is your down payment". If you buy the land or already own it outright then a lender (if there are any left) will consider that your total down payment and then you can then apply for a mortgage without having to put anymore down.

It is best to use a local builder who advertises "Build on your lot" as they already have working relationships with lenders who know how to do these specific loans.

I will skip much here for the sake of boring some.

You DO NOT make any monthly payments during the construction process no matter how long it takes to build. The builder takes % draws as the building process goes on. In the end you will pay interest on the draws for the time they were used.

There are no architectural fees paid by you if you use one of the builders plans. If you bring him one of those home plan books and say build this then yes they will charge up to 10% of the cost of the home. So dont do it. The price they quoted you is not so bad at all, $75-85sf. That is a basic home with no frills. From there the price leaps in bounds upward.

That is a short version. Go to a "Build on your lot" builder. The largest one Jim Walter homes has bit the dust after 50 years. Take a look at Tilson Homes or David Weekly is good but very expensive and dont like to build smaller homes. Look at Wyatt Construction as I have seen their work and they build average homes. Maybe give Wilshire Homes a look too.

Good luck

You must not be from Houston. There are plenty of decent/good areas of town where city lots are worth 120k. And thats just in good areas, not the best areas.

I'm not a loan expert, but I know there are construction loans where you pay monthly interest payments on the loan, then refinance to a regular home loan after the home is done.

Depending on the area, not all homes continue to lose value.

I do agree though on the fact that why build when you can buy a home for less. In almost all situations, an already built home will cost less than a similar new construction home.

What part of town are you looking to build in?

[axg275]

Bayou; I am looking to build in the Heights. All the proparty in the hights that is some what decent is at or above 350 K with a very small lot. In some properties lot is not even there. So I thought I can build a house with a lot (5000 sq feet lot) for the same money. Do you know if the soft cost of 29 K is too much?

Thanks for your replay

[Supermac34]

$29,000 seems extremely high for the plans. When we built our home I believe the fee to the architect was something like $2,500, plus an even smaller fee to the engineer for the slab.

[astrohip]

I'm not sure where to start...

Originally Posted by desertsun41

First of all I think your crazy to buy a home how as they continue to lose value. 2nd I think your crazy to go thought all the stress and trouble of building when there are a hundred thousand homes on the market to choose from. Boom, instant move in within 30 days.

Do you really really really want all that stress? If you knew what was involved you might change your mind.

Homes don't "continue to lose value". Overpriced homes will drop, homes priced to market will retain good value. How will you know when homes are at their lowest? By realizing a couple of years after the bottom that you should have bought. You can't time a market. I do agree that buying an existing may make more sense. You save yourself the headaches of construction, which come people don't handle well.

Originally Posted by desertsun41

Were is there a lot in the Houston area worth 120K? Must be quite the prime location. In this area we have something some other areas in the country do not have. It's called "Your land is your down payment". If you buy the land or already own it outright then a lender (if there are any left) will consider that your total down payment and then you can then apply for a mortgage without having to put anymore down.

Lots in my neighborhood go for about 600K. Lots in almost any decent inner city neighborhood are well above 120K. And no one will give you a mortgage solely based on your owning your land. They will look at all the numbers to see if it makes sense. If I own a piece of land worth 50K and want to build a half million dollar house, you think they will simply give me a $500,000 loan because of a piece of land worth a tenth of that?

Originally Posted by desertsun41

You DO NOT make any monthly payments during the construction process no matter how long it takes to build. The builder takes % draws as the building process goes on. In the end you will pay interest on the draws for the time they were used.

Confusing wording, but basically an accurate description of how a construction loan works. You get a loan (line of credit) for the amount of the construction you are financing, and as the builder presents his ongoing expenses (the "draw"), you draw on your loan to pay him. You pay monthly interest on the amount of the loan you have drawn on. Once construction is completed, the const loan is converted to a mortgage.

Originally Posted by desertsun41

That is a short version. Go to a "Build on your lot" builder. The largest one Jim Walter homes has bit the dust after 50 years. Take a look at Tilson Homes or David Weekly is good but very expensive and dont like to build smaller homes. Look at Wyatt Construction as I have seen their work and they build average homes. Maybe give Wilshire Homes a look too.

Also good advice. A "Build On Your Lot" builder is used to this process, and can guide you along. Tilson is far & away the leader in this area, and they have a solid gold reputation for doing right by their homebuyers. David Weekley also has a great rep, they will be more expensive. And I don't think you have to worry about someone "not wanting to build a smaller home". They all need business, and will build what you want.

However, you can still use a custom home builder to do what you want. They are also used to building on existing properties, and can help with the financial process. Do your homework, see who is building (or has built) in the area, talk to people who have bought from them, make sure they are financially ok.

Originally Posted by desertsun41

Good luck

Great advice!

[axg275]

Super Mac this is the exact quote from the email I got from the builder " I would be able to do it for $29,000. That would include all the architectural and engineering plans. The plans alone are worth more than half of that."

When I talk to him on the phone he had told me that this 29 K also includes working with the city for the surveiying and possably cleaning the lot.

Any suggestions?

[EasilyAmused]

29,000 is outrageous.

Call Alan Kent of Kent&Kent. He has a price per square foot to create the plans. Very good designer. He's designed a lot of city houses.

Also, if the lot has a house on it, and being that's it's only a 5,000sf lot, I can't imagine it would be more than 5k to clear.

I don't know what you want to put in the house, or the quality to you are going for, but I really don't even know of any basic homes being built under 100 psf. in the Super Neighborhoods. A very nice custom starts around 140.00, if that gives you idea.

PS-Lots in my hood start around 550-600k before the homes are torn down.