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Building a home
We're getting ready to sign a contract with our builder. Since we're building on land and not in a subdivision, we're carrying our own construction loan.
I'm wondering what I can expect to pay in interest payments while the house is being built. I know it depends on how much of the loan is disbursed. Do they dispurse the full payments as the work is done? Or pay a percentage and then hold some back until it's finished?
If you have any experience with carrying your own construction loan, can you give me an idea of what to expect? Maybe even a number?
Also, is it better to pay cash for items along the way, or use the entire loan and save the cash to use as a down payment? (As I write this I'm assuming it's better on paper to save the cash as a down payment...the net effect will be the same.)
Thanks for your help!
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Re: Building a home
For us, after the bank approved the construction plans and had the planned build appraisal (a big step - because if the appraiser does not provide an appraisal that meets the construction cost you will be forced to either amend your plans - but even then you are likely to need to pay the difference between construction cost and appraisal amount plus your 10-20% or whatever you are required to put down).
Once all of that is worked out then we went through and signed all the paperwork at the bank - our builder and the bank have a relationship and have set out the stages at which point they inspect and he gets paid. Our builder wasn't paid a cent until after foundation was poured. Then he was paid a % THEN we started to be billed based on that amount that was paid out by him (not the entire cost of the construction loan) plus we paid an amount that would bring us up to our required 10% down. So it was just part of our monthly payments as opposed to paying the DP at all once at closing like with a traditional mortgage.
I found the money part very interesting in that as I said, for us anyway, our builder was paid nothing until after the first stage was completed then he was paid an amount that covered his costs for that stage. I also found the 'building up' to the down payment interesting as opposed to putting one big % down at closing or even up front. Though we are required to have an additional 10% in savings - we don't have to use it if we don't want to.
We have had 12 change order so far. Has nothing to do with the architecture plans (which I spent 3 months designing our home) but rather ... things like ... we ended up spending X amount high on appliances than was our original allowance - same with cabinets I spent 1k more - same with light fixtures I spent a little more. If you are building a custom home - you don't always know exactly how much things REALLY cost. If you are doing a builder package home then you will probably be given options in their office that will be in your allowance amount so it keeps your chances of going over low.
Anyway ... at the end the new amount will be submitted with our overages and we can either choose to roll them into the mortgage provided that the as-built appraisal can handle them (in my market a 2500 ss fridge is just fine compared to the 6k I spent - so I expect that things like that may not appraise fully). Same thing happens as during the to-be-built appraisal ... if the as-built appraisal doesn't come in to cover the costs then we will have to pay the difference.
I was really nervous about our planned appraisal ...because they are really soft with banks right now but we are building a fairly unique and desirable floor plan and we actually received 'credit' for that with the appraiser plus our builder is know for quality homes and his homes always appraise higher. So we came in at 100%.