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Be Your Own General Contractor - Financing & Subcontractors


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.

Construction Loans:

  • 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.

Two Homes?

  • 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.

Further Preparations

Inspections Required:

  • 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.

    1. Final inspections must be complete before residents can get more than temporary power.

    2. A Certificate of Occupancy will be issued when all inspections are complete.

Final Details:

  • 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...

    1. Open a line of credit with them.

    2. Ask for subcontractor recommendations.

    3. 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.

    4. 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

  • Framing carpenter

  • Surveyor

  • Grading & excavation contractor

  • Soil treatment firm

  • Footing contractor

  • Brick masonry contractor to build a block foundation

  • Concrete contractor to pour walls, slab, floors, driveways, etc.

  • Waterproofing contractor

  • Electrical contractor

  • Plumbing contractor (Well & septic if needed)

  • HVAC

  • Roofing

  • Insulation

  • Drywall

  • Painting

  • Finish carpenter

  • Flooring, carpet, & counters

  • Tile

  • Cleaning crew

  • Landscaper

  • 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.



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