Owner Builder Construction Loans information   

Owner Builder Construction Loans
An Owner Builder Construction Loan is much harder to source. The main reason for this is there are not too many lenders that will lend money for this. The lenders that do often have strict rules on land size, location, and the percentage you can borrow. Some only let you borrow 50% of the ‘cost’. Therefore you would need sufficient equity in the land, or a large sum of money.

There are many lenders who will finance the entire cost of materials, labor and property. One-time-close loans and construction-to-permanent loans have made home construction loans simpler than ever. Many buyers will likely get a construction to permanent loan. These loans are commonly referred to as a construction loan and it consists of two parts.

While the house is under construction, an “interim loan” is in place. After the construction period, the loan is converted to a “permanent loan,” where a certificate of occupancy is issued). A construction loan can be taken out to build an additional room on your house. Any equity in your home can be used to help you get a lower rate on your construction loan. In an article entitled, “How construction loans work,” by Bankrate, “Construction loans are story loans. That means that the lender has to know the story behind the planned construction before they're willing to loan you money. Because it's a story loan, it's not going to be standardized like mortgage loans

Construction loans are usually variable-rate loans priced at a spread to the prime rate or some other short-term interest rate. You, the contractor and the lender establish a draw schedule based on stages of construction, and interest is charged on the amount of money disbursed to date. Another variable in construction loans is how much of the project cost the lender is willing to lend. If you already own the land, then that can be considered as equity on the construction loan.

A construction loan, unlike a mortgage, isn't meant to be around for a long time. If you're taking out a $200,000 construction loan for six months and you pay an extra 0.5 percent on the loan, it costs you an additional $250. (Assumes an average $100,000 loan balance over a six-month construction period.) You may be willing to pay a higher rate on the construction loan if you're doing construction-to-permanent financing and can get better mortgage terms or a longer, better rate lock from that lender.

Owner builder construction loans can be combined with the Energy Efficient Mortgage, but the home must meet a specific level of efficiency to qualify. But don’t trust just any company with your owner builder construction loan. Be sure to let your suppliers and subcontractors know that your owner builder construction loan will allow you the luxury of paying them upon completion of their work and with this option in place it allows you a better position to negotiate cash discounts and faster service on your home.

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