One Time Close Construction Loan:
One closing for the short term construction line of credit & the "permanent" mortgage.
Main advantage is single closing cost.
Main disadvantage is a fixed dollar amount between construction credit & end mortgage.
These loans are not always available for owner / builders because lender doesn't think it's a good risk.
Two Time Close Construction Loan:
Two separate loans with two closing costs, but more flexibility.
You can increase construction line of credit because the refinance mortgage will pay it off.
Refinance mortgages offer competitive rates.
A construction loan is like a credit card with a low interest rate & high credit limit.
The money is disbursed to you as the building progresses.
You only pay interest, no principal, on the amount lent to you.
Construction loan interest is a "cost to build" item on any new home, like lumber or nails.
There is a delay between house progress & the bills for that progress, so you probably won't receive or pay interest on the full construction loan until your house is complete, at which point you will refinance into a permanent mortgage.
Sell your house & live in an apartment until your construction is complete, as a lender may not qualify you for the construction loan with an existing house payment.
Financing charges with lenders can total about 2-3% & may be paid when you close your construction loan or be deducted from the construction loan amount.
You will need short-term working capital for things such as paying subs, fees, & permits before your first construction disbursement.
Keep 5% of the cost of the house in cash, commercial bank loan, 2nd mortgage on your existing house, or get a bridge loan.
Qualifying for a Loan:
The better your credit, more money you put down, & lower debt to income ratio will qualify you for more money at a lower interest rate.
You should apply for 75-80% of the "subject to completion" appraised value of your project.
The end loan, or permanent mortgage, is always part of the construction loan application, regardless of single or double close construction loan.
Paying for the Land:
Lenders would typically lend 80% or less of your acquisition costs alone (land, labor, & materials).
These days, lender may loan 80% or more of the "subject to completion" appraised value.
STC value is based on appraiser's opinion of true market value of house & land when complete.
Temporary electrical, or saw service, to ensure proper grounding.
Footing, before pouring concrete, to make sure you reach solid load bearing ground.
Slab, before concrete is poured, to determine whether it is properly insulated. Any plumbing in the slab is also inspected.
Electrical, plumbing, & HVAC rough-in, to ensure proper installations before covering up.
Framing rough-in, to ensure structural integrity, especially after electrical, plumbing, & HVAC installations.
Insulation, to ensure code compliance.
Final electrical, plumbing, HVAC, & building to ensure systems work properly, comply with codes, & are safe.
Final inspections must be complete before residents can get more than temporary power.
A Certificate of Occupancy will be issued when all inspections are complete.
If you haven't already, select your materials - bricks, shingles, windows, doors, roofing, trim, plumbing, fixtures, built-in appliances, lighting, flooring, & hardware.
As you visit building supply stores, you will also...
Open a line of credit with them.
Ask for subcontractor recommendations.
Contact gas, electric, & water departments for hookup procedures. You may want to order a pre-wire from phone, TV, & internet, as this sometimes takes 3-5 weeks.
Shop for Builder's Risk or Fire Policy. This policy should go into effect when materials arrive on site.
Doing Your Own Labor:
If you're not an expert at the trade, don't do it. Hire a professional to get in & out so your disbursements come in a timely manner.
Your Subs & Professionals:
Real estate broker for land search
Loan officer at bank, credit union, or mortgage lender
House designer or architect
Grading & excavation contractor
Soil treatment firm
Brick masonry contractor to build a block foundation
Concrete contractor to pour walls, slab, floors, driveways, etc.
Plumbing contractor (Well & septic if needed)
Flooring, carpet, & counters
Licensed fee appraiser
Finding Your Subs:
A lumber supply store is the best place to find a carpenter, who can then recommend most others.
"A good sub is a working sub".
A job site is another great place to find subs, walk up and ask.
Only certain trades will be listed on yellow pages.
Each sub should carry insurance on their employees & provide you with a certificate of insurance.
Get 3 or 4 written bids before selecting your subs. Make sure you have detailed contracts in writing, and that each sub is per job, not per hour.
Asking for Bids:
Plumbing - Plumbing bids should include all plumbing fixtures down to the toilet seats. Visit plumbing showrooms to select fixtures. You will be paying list price as the plumber makes a profit on these items.
HVAC - This contract should include fan powered vents for the bathrooms, clothes dryer, stove, and range hood.
Electrical - Electrical bids should include all switches, wiring, receptacles, circuit breakers, panel boxes, temp service box & install, saw service, wiring of all built-in appliances, installation of ovens & ranges, furnaces, heaters, & air conditioners. Electricians often do phone & internet rough-in.
Don't forget to specify who is responsible for connecting utilities (running water lines, sewer lines, & electrical hookups).
Working with Subs:
All subs should be responsible for obtaining inspections from the building department.
Trust the subs to be the expert, & don't micromanage them. Treat them well, pay them promptly for good work, & work with them again.
Paying your Subs:
The carpenter & some other subs will require draws, or partial payments, as work progresses. Payment schedules will be agreed upon in the contract before work begins.
The best way to get your sub to complete the job is if you owe him money.
Never pay for unfinished or unsatisfactory work.