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Financing

Aug 03
0

The Appraisal Process

By | Construction, Financing, How It Works, Learning Center | No Comments

In the residential construction home business, one of the more trickier things to make sure sufficient funds are available for your project is the appraisal. Essentially, once a client orders their home and your custom home plans have been drawn up, we send the contract along with the blue prints to the lender. Of course the lender needs to place a value on the structure and the only way to do that is to get an appraiser to determine its value. This cost is passed along to you the client and it typically runs around $450-600. Depending on how busy things are in the real-estate world, appraisals can take up to 3 weeks.

Appraisers use a software program where values are placed on such things as square footage, sizes of garage space, quality of products, such as granite or Formica. Where you build is perhaps the largest contributing factor because they will pull values from other homes in the area that recently sold or were constructed. View lots, homes on acreage, existing structures, all play a role in determining worth of the project.

After the appraisal is completed, the lender will set in motion what is referred to in the business as “funding the project”. If the value of the project, cost of construction or acquisition cost is more than the appraised value, the client(s) will have to bring “money to the table” to cover the difference. If your appraised value is more than the acquisition cost, depending on how long you have owned the land, a down payment will be determined to fund the loan. Most construction loan programs that banks use take into consideration the length that you have been on title with the land; if over a year, known in the business as “seasoning”, you can obtain 100% financing. You will have to confirm of course if your lender offers this. If, though, you are negotiating on land, then banks offer different programs that will require as little down as 5% up to 20%. For the most part, rates are similar, but “closing cost” can often be different. Closing cost is margin that in essence means the cost of doing the business of getting the loan in place. Say a bank says they have a 3% closing cost. If your loan is $300,000 then it would equate to roughly $9,000 dollars. That money can be for the loan agent, but mostly it’s what the bank is making off the sale of the money it uses to loan to you. A strong word of caution here: when they say 3%, it does not always mean 3%. They still have junk fees. A junk fee might be “courier service”, “Administrative Services”, “Pen Use”… Not to be funny, but when you read some of the fees, you might want to chuckle to keep from crying. We did mention 3% closing cost but others can be 2% and some higher if your credit worthiness and or FICO scores are difficult. You might be able to negotiate some of the junk fees, but I have found it almost impossible to negotiate the closing cost fee unless it is for a large sum of money. At this point it’s time for a review:

Let’s reflect on what we have learned

  • Select a builder to build your home (True Built Home should be your logical choice)
  • Select the home you want
  • Order your home-processing payment from $2500-3500 will be required
  • Get your custom plans completed by our excellent design team-depending on work load and any changes you make it can take up to 2 weeks
  • At this point we can send the blueprints to the lender along with on the other important paper work for appraisal, 1-2 weeks. We also send the plans out to get engineering if needed-1-2 weeks
  • Once appraisal has been completed, the lender normally collects all the bids and estimates for the project and “runs” the numbers
  • Once engineering is done and all the financials look good, client submits for building permit
  • Once the permit is completed-4-6 weeks for most counties/city, you’ll want to call your local True Built Home Branch and request your pre-con meeting
  • You’ll want to bring all county/city paper work, along with your plans stamped from the county/city to the per-con meeting
  • Under normal construction times, we should be able to get a foundation crew to your site within 2 weeks. During especially busy times, it may take longer
  • The pre-con meeting finalizes all selection and any last-minute changes to standard or upgraded items
  • Depending on cost of the project and whether or not you own your land, a down payment maybe require to the lender to fund the project
  • True Built Home is given an escrow number and we verify funds are available. If you are a cash deal, we collect a percentage of the first payment at the pre-con meeting

Granted, all the above things are not “inspired”, it typically flows this way.

One of the fundamental things the owner of True Built Home, Lewis D Mann, wanted when he started the company was to impart as much knowledge about the products he puts in the homes; the process that True Built Home uses to construct their beautiful house and the transparency of the process to you. We hope you find this article informative.

For more information regarding appraisals, you might find this article interesting as well.

If you do happen to come across a dead link, please notify us. Thank you.

 

Mar 14
2

How can True Built Home SAVE you thousands of dollars!

By | Construction, Financing, Learning Center, News & Info, Products, Resources | No Comments

I have 23,000 reason why you should build a True Built Home

When comparing home builders side by side, it can really be tough for you the buyer. Why? Because not all apples are built the same.

As an illustration, consider if you were buying a new car. Sure, it comes with wheels, engine and transmission. However, if it was say an automatic transmission instead of manual, leather seats instead of cloth, nice rims instead of hub caps, it becomes apparently clear that you are buying a nicer vehicle than the plain-jane. However, you should expect or demand that the cheaper car should also be priced cheaper right? If then you bought the cheaper car, but paid the same price as the nicer car then yahoo for the dealer, but shame on the consumer for not doing their homework.

It’s similar with our homes compared to others. For instance, I have shouted this from the roof tops, but it’s so important that I am going to stress it in another way. I am going to compare a top-selling floor plan by one of our major competitors to our top-selling home just to show you how much more money you are wasting by ordering my competitors house and THEN, explaining why we can build for less money with more quality features than builder “X”. After which if you choose to literally “throw your money away”, it’s on you.

Being discreet I will simply say one our largest competitor sells a home that is 2576 sqft, 2 car garage 2 bath in Washington for $158,900 or roughly 61.68 psf. We’ll compare that home to our best seller the Juniper Ridge which is 2527 sqft with two car garage 2.5 bath for $155,900 or 61.69 psf. nearly the same square footage price right? So you would think it should have pretty much the same features, correct? It’s important to compare apples to apples so you the consumer can have a clearer idea of what you are getting in your home or what you may want to add to get a nicer home. I am going to point out only where glaring differences exist. For starters let’s go to the foundation because, you should have noted that you already get an extra bathroom with our TBH house (about $3500);

Foundation – They have a 22’’ foundation, True Built Home (TBH) offers a 24’’ foundation. Why shorter? Obviously to save money. In addition, they do a hung joist floor where we do a rim joist floor. That essentially cost the builder more but the reason being is we need that extra space because we often run all the HVAC plenum under the house, but the real benefit is almost all clients want access to the crawl space for future use. They do not offer the electric furnace package standard, their standard heat source are wall units. So, between the two items mentioned here, you are looking at about a 10k dollar upgrade. Get out your wallet.

Next; their garage space is 22×22, where ours is 22×24 or 44 more sqft. To add 44 more sqft to their garage you’ll likely be charged 1600 dollars. Oh BTW, your TBH home will come with a freezer jack, and 2 outlets in the garage and a plug-in the ceiling because we do a garage door opener standard (we mention later in this article) – put your hands up with our competitor because they are going to charge you another $500-600 dollars for those items.

Fascia board – If you look at their product, they attach the gutters right to the truss tails. However, a True Built Home comes with fascia board. The cost to add to our competitor’s house add $700-800, and the peace of mind that the truss tails won’t rot! As you look up under the overhang of the roof, with their home you will see oriented strain board or better known as OSB. While this is a great product and we use it too on our homes, we don’t use it for the overhang of the roof. There is a debate on whether or not to allow this to be exposed to the constant weather. Builder “X” will tell you that the paint you put on it will be just fine, however, it still is unsightly and will it hold up under Washington mood swings with our rain and sun?? TBH only installs CDX plywood. It’s smooth, can be painted and durable. It looks great and last for years when used properly. If they offer it, you might pay as much as $500-600 extra dollars for this True Built Home standard feature.

Let’s move inside where the costs are really going to go up.

Carpet pad – We do an 8lb pad, they list “carpet pad” as their standard and one would only guess that it’s a 6lb because if it were 8lb, they would mention it. Upgrade cost-around $700 dollars

Our hemlock solid wood trim stained to match your cabinets is by far a step up from what our competitor offers. Their standard trim is an embossed (plastic) coated finger jointed wood trim. Obviously much less expensive and it shows but the real problem is when you damage it. You see, because it’s embossed you can repair it to make it look right again. With a true wood trim, when it gets nicked or damaged it’s an easy fix. Do you desire that TBH standard? It will cost you about $1800.

If you get rid of the cheap trim, you’ll have to upgrade their door package because they are an embossed flat photo finish door to match the plastic coated trim. When will it stop, right? Add roughly $2000 dollars because our interior doors come painted as well! We offer 5 different whites as standard. However, if you have a different color in mind, we charge a bit more outside of our standard white.

All of our cabinets come standard as a 36’’. Add $800 dollars for that change. Are you yelling for mercy yet?

Back to the garage – We include the opener. However, if you are their client you may want to open it on a rainy day, right! Add $400-550 dollars.
We use only Moen faucets throughout all of our branches-Not sure what they use, they don’t list it but if they don’t you could be looking at around $900-1100 dollars to have installed a nationally recognized and award-winning faucet. We offer both the Brantford and the Eva standard in chrome. Satin and ORB are an upgrade. Keep in mind the deep kitchen sink and we hope you’ll be pleasantly surprised by our faucet as well.

We really could mention more like HD Formica counter tops, a better selection of standard vinyl and carpet, door hardware, bathroom hardware; all of which are upgrades by others. So, if you walked into builder “X and wanted the “Standard” True Built Home, how much more would you have to spend? Sit down.
You would spend north of twenty-two thousand dollars, that’s right $22,450 dollars, and we are being conservative!

So, you should be asking yourself why and how. Why do they do that, and how can TBH offer more for less? The big secret is they are franchises. Yep, they have to pay the mother corporation for each home sold and they make the majority of their money on upgrades, and you pay out the nose to make their business model work. True Built Home is owned by only one person; not like a franchise and not like another competitor of ours which is owned by three families. When compared to them as well, you end up funding their checking and saving account, not yours.

So the question we want to ask is when a company offers a product but does not list the items that go into the home… why not? The other is, if a company does not list the price of their homes, why not? When you the buyers are kept in the dark from the start, how might you be treated during the process and at the end of the process?

Our standard home, is our competitors upgraded home.

Obviously it’s your money and you can spend it how you like, but nearly $23K is a LOT of lattes and movies. Or, as we stated at the front of this article, a car with leather seats, nice rims and an automatic transmission!

Mar 08
0

Free Yourself from Credit Woes

By | Financing | No Comments

Don’t let credit bog you down; sign up for a free consultation now!

tbh_March_8_fbDon’t miss out on this exclusive offer from True Built Home and Crane Financial Group for a No Charge Mortgage Credit Attainment Consultation with a Certified FICO Professional! This $187 value, courtesy of Veritas Credit, won’t last forever; sign up now! http://tbh.myloancredit.com/. At True Built Home, we know that building a home is a big investment, which is why we strive to make it as affordable as possible: http://truebuilthome.com/.

Jan 28
0

Mortgage Basics for Building a Home

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eplansBuilding a home isn’t like buying a home, and the mortgage you will have to take out will differ considerably. Don’t let that deter you, however: if you keep the basics in mind, navigating the process will be much easier than it may at first appear.

The first thing to understand is that the mortgage you need to take out on a home building project will be threefold; that is, you will need a loan for the purchase of the land, the construction of the home, and the permanent financing for the home post construction.

Lenders are likely to be most hesitant about the first loan, as land can be difficult to resell if your plan falls through. Because of this, you may be faced with a large down payment, which you should pay in cash if at all possible, and high interest rates.

If you already own the land you intend to build on, or if you are able to pay for the land straight up, you will of course skip this first loan. In this case, talk to your lender about the possibility of merging the construction loan and permanent finance loan.

The next aspect of a mortgage to consider is the loan for construction funds. When looking for lenders, make sure you find one that will cover this, because not all will. Also, make sure you are already working closely with your contractor, and that you have all your paperwork in place. Blueprints and permits are going to be required, as well as verification that your contractor is licensed and bonded.

The last loan is more similar to one that you would take out on a pre-built home. This loan goes into effect once the construction financing ends, when the house is fully built, and is almost always a permanent loan.

Different lenders go about this process different ways, however, and these three loans are subject to change based on who you go to. For example, some lenders may opt for a rollover loan, which would merge all of these into one package. This way, you only have to qualify and to fill out paperwork for one loan, saving you money on legal aid.

However you go about your loans, it is important that you make sure you have the best lender for your situation beforehand. Look around for a while on the internet, and talk to your contractor, to get their opinion. Eplans.com goes into more detail about mortgage basics for building a home at: http://www.eplans.com/community/mortgage-basics-for-building-a-home.

At True Built Home, it is important to us that you get the most for your dollar. We are there to help you through each step of the process and ensure that you get the home of your dreams: http://truebuilthome.com/.

Jul 27
0

Terry S Pemberton-Expert Construction Loan Officer

By | Construction, Financing, How It Works, Learning Center, Resources | No Comments

True Built Home’s brief interview with one of the Pacific Northwest lending construction loan officer, Terry S. Pemberton of Umpqua Bank

 

Terry first of all, how long have you been in the lender business, and how many years total in the construction lending side of things?

Well Lewis, I’ve been in the mortgage banking industry since 1989 and I have specialized in construction lending for 20 years.

Terry, it’s good to hear that you moved from one nationally recognized bank to a more regional lender with Umpqua Bank. Why the move?

After a lot of analysis, I determined that Umpqua Bank’s construction loan products offered a better overall structure which is more beneficial to the needs of the local borrowers and builders in our area.

If a client were to ask, “which lender does TBH recommend for their construction loan?” why might we tell clients to use you?

Lewis, our construction loan products have low fees and great rates as compared to some of the other products on the market.  But even more important to some borrowers, is the low down payment feature if the borrower does not already own the land. If a borrower is in title on the land at the time of application, they can utilize the equity from the future finished value of the new home and land together, as if the home is already built on their lot. The benefit to the borrower is that the equity can be applied to the down payment. These unique features can be a huge help to some borrowers.

How many construction loans have you done over the course of your professional career and how does this experience help the customer?

I’ve probably closed over 1000 construction loans in the last 20 years. My experience in construction lending helps me guide the borrower through a complex loan with ease because I’ve had the opportunity of working with borrowers through so many different scenarios over the years.

What has been the average loan amount?

My construction loans have ranged from $50,000 to $2,000,000, but, on average they are typically in the $200,000 to $400,000 range.

Are construction loans more expensive than say a refi or purchase?

Yes, construction loans in general are more expensive than most other types of residential mortgages, mainly because the loan needs to include fees for the monthly inspections and draws. One advantage at Umpqua Bank is that we process and fund all draws internally through our own Custom Construction Draw Department. This means that builders will always work with an Umpqua Associate and never a 3rd party.

What documents are normally needed from the client to close on a construction loan?

Each borrower’s personal financial situation is different, but generally, financial items needed are the same as any other mortgage. As for the construction portion of the loan, I will need to document the project with a contract from the general contractor, plot plan, description of the materials, and a line item budget of all the costs.  The borrower may have portions of the project that will be completed by someone other than their general contractor.  This could be for things like the septic system, a new well or landscaping.  If that’s the case, we’ll need documentation for those items as well.  I will give the customer and the builder a complete list of the items we require early on in the process so that everyone knows what all will be needed.

How long will a construction loan take to close?

The time to complete a construction loan can vary quite a bit depending on each scenario.  From the time I receive a complete credit package and a complete builder and project package we can usually close the loan within 60 days.  Things that can extend that time frame are finding land on which to build, getting septic approval, getting bids for items that won’t be completed by the general contractor or changes to the project after the appraisal has been completed.  When I meet with a customer I explain the details and set expectations based on their situation.

What are some typical “hiccups” to construction loans?

Obtaining the various permits required in association with the building project can create delays. Also, unexpected cost overruns can occur during construction.  If a borrower started with temporary construction financing instead of a one-time close loan, they may have trouble getting approved for their permanent financing if they have had changes to their financial condition during the course of construction. Certainly other “hiccups” can occur also.

What do you think stresses out most clients during the process?

I advise all of my borrowers to try and have patience throughout the process. Many things can stress out the borrower since this may be the first time they have built a home and the long list of decisions they need to make in a short period of time will tend to add to their normal stress load. The main idea to keep in mind is the finished product will be something they can enjoy for many years to come.  They need to talk about setting proper expectations up front, having solid plans and specs, keeping changes to a minimum and keeping in mind that they may run into unanticipated snags.

We know you do business with TBH competitors, but if you were to offer a compliment about True Built Home to our prospective clients, what might that be?

The fact that TBH survived and grew out of the 2008 real estate market is impressive by itself. In addition, I think TBH can include itself in a general group of on-your-lot builders who recognize the need of a middle market, custom home product, and understand how to display and deliver the concept to the marketplace.

Thank you, Terry for your time.

 

Loans subject to credit approval.

Terry S. Pemberton

Home Lending Officer NMLS ID 185396
Direct: 360-280-4208
Fax: 888-977-9408
Email: terrypemberton@umpquabank.com
Web: www.umpquabank.com/tpemberton

Terry can serve all of True Built Home’s locations and branches.

Jan 13
0

Show me the equity!

By | Financing, Learning Center, News & Info, Resources | No Comments

In reading this article I found in it some sobering facts, especially the one about homes that are in the $200k range. If having equity in your home is important you’ll enjoy this piece. If you would like to read the article from the original site, here is the link.

Staff TBH

 

WASHINGTON — If you’re like most homeowners, it’s your biggest asset. You can’t track it online or check monthly statements sent to you by a bank, but it’s crucially important for your personal financial well-being and your retirement planning.

It’s your home equity — the difference between the market value of your house and whatever debt you’ve got on it. Equity for most of us is a big deal, and based on data released recently by the Federal Reserve, Americans’ home-equity holdings are booming.

Related story: New online calculator makes fees in mortgage offers transparent

That’s great news for most owners — though not all — and for the economy as a whole. The more equity we have, the more likely we are to spend money on goods and services that create more jobs — the so-called wealth effect.

Now consider these brain-bending big numbers: Thanks to rising prices and substantial continuing pay-downs of mortgage debt, owners’ combined equity holdings increased by $795 billion during the three months ended March 31. Homeowners’ equity holdings at the end of the first quarter totaled $10.8 trillion, the highest amount since late 2007 — but still well below the bubble-era record of $13.4 trillion reached in early 2006.

 

REAL ESTATE

Condos are becoming FHA no-lending zones

SEE ALL RELATED

 

The ongoing boom is also pulling thousands of owners across the country out of real estate purgatory — they’ve been stuck in negative equity positions but are now transitioning to positive. According to new estimates from mortgage and housing analytics firm CoreLogic, the owners of 312,000 houses moved out of negative territory during the first three months of 2014. If prices rise just 5% in the year ahead, say researchers, an additional 1.2 million owners could do the sale.

Now for the sobering side of the home-equity story: Despite the boom in housing wealth underway, many owners are still unable to join the party. About 6.3 million of them remain underwater on their loans. The average amount of negative equity they’re carrying is often significant — they owe an average 33% more than their house could command in a sale today. That gives you an idea of the widespread pain still being felt in the wake of the bust and recession.

The impact is especially severe for owners who bought with little or nothing down and then loaded on additional debt with second mortgages. The average negative equity balance for owners with two mortgages is about $75,000, according to CoreLogic. For households with one mortgage, the average negative equity is around $52,000.

Also on the sobering side, millions of owners continue to have less equity than they’ll need if they want to sell or even refinance. At the end of March, 10 million owners had less than 20% equity in their properties, and 1.6 million of them had less than 5%. Given real estate transaction costs, most people with less than 5% equity would have to bring money to the table to pay off the debt on their house when they sell.

Equity holdings are closely linked to market segments — higher-cost houses are less likely to be in negative equity positions than lower-cost homes — and geography. According to CoreLogic, only about 3% of homes costing more than $500,000 have negative equity. By contrast, 17% of homes costing less than $200,000 are in negative positions.

Not surprisingly, areas of the country that performed worst during the bust — where easy-money financing was most common during the boom — continue to have high rates of negative equity, even well into the housing rebound. But there’s one dazzling exception: California. In some inland counties during the recession, toxic financing contributed to home value losses of 50% and higher. Yet today, thanks to the most vigorous marketplace rebound of any state, just above 11% of California homes are in negative equity. Compare that with 29% in Nevada, 27% in Florida, 20% in Arizona.

Where are average equity levels highest? Texas, where home prices remained modest and affordable during the boom, is at the top. Just 3.3% of Texas homes have debt exceeding their resale values. Rounding out the top five, Montana, Alaska, North Dakota and Hawaii all have less than 5% negative equity on average. The District of Columbia, a high-cost market that has seen significant home-price appreciation in the last several years, ranks sixth best in the country with a 5.1% negative equity rate.

 

Jan 13
0

Equity in your home, or the lack there of

By | Financing, Learning Center, News & Info, Resources | No Comments

I read this article; although a few months old, I found in it some sobering facts, especially the one about homes that are in the $200k range and the owners equity, or lack there of, position. I have highlighted it below.

Staff TBH

—-

WASHINGTON — If you’re like most homeowners, it’s your biggest asset. You can’t track it online or check monthly statements sent to you by a bank, but it’s crucially important for your personal financial well-being and your retirement planning.

It’s your home equity — the difference between the market value of your house and whatever debt you’ve got on it. Equity for most of us is a big deal, and based on data released recently by the Federal Reserve, Americans’ home-equity holdings are booming.

That’s great news for most owners — though not all — and for the economy as a whole. The more equity we have, the more likely we are to spend money on goods and services that create more jobs — the so-called wealth effect.

Now consider these brain-bending big numbers: Thanks to rising prices and substantial continuing pay-downs of mortgage debt, owners’ combined equity holdings increased by $795 billion during the three months ended March 31. Homeowners’ equity holdings at the end of the first quarter totaled $10.8 trillion, the highest amount since late 2007 — but still well below the bubble-era record of $13.4 trillion reached in early 2006.

The ongoing boom is also pulling thousands of owners across the country out of real estate purgatory — they’ve been stuck in negative equity positions but are now transitioning to positive. According to new estimates from mortgage and housing analytics firm CoreLogic, the owners of 312,000 houses moved out of negative territory during the first three months of 2014. If prices rise just 5% in the year ahead, say researchers, an additional 1.2 million owners could do the same.

Now for the sobering side of the home-equity story: Despite the boom in housing wealth underway, many owners are still unable to join the party. About 6.3 million of them remain underwater on their loans. The average amount of negative equity they’re carrying is often significant — they owe an average 33% more than their house could command in a sale today. That gives you an idea of the widespread pain still being felt in the wake of the bust and recession.

The impact is especially severe for owners who bought with little or nothing down and then loaded on additional debt with second mortgages. The average negative equity balance for owners with two mortgages is about $75,000, according to CoreLogic. For households with one mortgage, the average negative equity is around $52,000.

Also on the sobering side, millions of owners continue to have less equity than they’ll need if they want to sell or even refinance. At the end of March, 10 million owners had less than 20% equity in their properties, and 1.6 million of them had less than 5%. Given real estate transaction costs, most people with less than 5% equity would have to bring money to the table to pay off the debt on their house when they sell.

Equity holdings are closely linked to market segments — higher-cost houses are less likely to be in negative equity positions than lower-cost homes — and geography. According to CoreLogic, only about 3% of homes costing more than $500,000 have negative equity. By contrast, 17% of homes costing less than $200,000 are in negative positions.

Not surprisingly, areas of the country that performed worst during the bust — where easy-money financing was most common during the boom — continue to have high rates of negative equity, even well into the housing rebound. But there’s one dazzling exception: California. In some inland counties during the recession, toxic financing contributed to home value losses of 50% and higher. Yet today, thanks to the most vigorous marketplace rebound of any state, just above 11% of California homes are in negative equity. Compare that with 29% in Nevada, 27% in Florida, 20% in Arizona.

Where are average equity levels highest? Texas, where home prices remained modest and affordable during the boom, is at the top. Just 3.3% of Texas homes have debt exceeding their resale values. Rounding out the top five, Montana, Alaska, North Dakota and Hawaii all have less than 5% negative equity on average. The District of Columbia, a high-cost market that has seen significant home-price appreciation in the last several years, ranks sixth best in the country with a 5.1% negative equity rate.

Jun 28
0

How to buy a home

By | Construction, Financing, How It Works, Learning Center, Resources | No Comments

Before we get into the nuts and bolts of “how to buy a home”, we should first consider “should I settle for a used home?” It’s cliché but often repeated, buying a home will be the largest investment you will make in your life, unless of course you have 4 girls and they all need braces! So, if it’s true that it will be the largest investment, why do so many people make some rather common mistakes about their first home? Often, many feel they can’t afford something that doesn’t come with “problems” or repairs. Does that have to be the case? Not really. Here’s why: when considering the purchase of a home, many think that building a new home is a pipe dream because, either it cost too much, or the stories they have heard about building a home are shocking. Granted, there are some very skilled general custom home building contractors that charge what they are worth. Often the quality of products they use, or the skill level of the subs they use, all might be high-end items and personnel. As a result, you could easily spend $125 per square foot on a new home. Stories of building are also true. Building a new home can be stressful for many reasons. Here are a few in my experience that shed light on why some individuals struggle with building a new home.

  1. Stretched to the max.
    • I have observed couples who qualify for a loan, and take the loan to the max of the limit, and then during construction other costs creep in and the pressure of having to “find” additional funds puts immense pressure on both the client and the builder. Avoid this by putting a contingent amount of money into the loan for surprises during construction. A 5-7% contingent fund (of the entire purchase) in your loan will go a long way to alleviate some of the potential moments of stress related to building.
  2. Unprepared.
    • Focus on what you want. Quality, functionality, economics of the purchase, or location. Each of these, and perhaps a few others, if meditated upon and agreed upon, if you are a couple, will help you to make wise choices regarding your home. Focusing on one, or no more than two, because budget often predicates your choice, will help keep your project from derailing.
  3. Unrealistic expectations.
    • If you are paying $125+ per square foot for a new home, I would say that you have every right to have high expectations. If though choosing one of the many on-your-lot builders here in the Pacific Northwest and getting what many describe as a “ridiculous” priced home, you may need to temper your expectations. Not to say we don’t strive for excellence, the reality of the build is, you’re paying half the price in some cases, which may mean that having every imperfection addressed is simply not a realistic expectation. If you feel you are the type to demand more than what you pay for, you may want to opt for a smaller home at a $125 per square foot. If though, you see the forest, not just the trees, than you are a perfect candidate for a home at a “ridiculous” price.

So, let’s address “how to buy a home”. I think it well to understand that as many people you ask that question, you will get a plethora of answers and advice. So, please indulge me with what I advise. It’s all about the money. Banks like to use what’s called the “debt to earnings ratios” to determine how much you can afford a month on a new home. Easy to figure, and then the real fun starts with all the paper work. Here is a calculator that you can use to see how much money a lender might allow you to borrow when purchasing a home. Now, just a bit of clarity. You don’t have to put in the amount of gas you use or the amount of your food or entertainment budgets. They want to know credit card payments, car payments, and other long-term debt that you might have. Alimony or child support would be considered such. Subtract what I call “hard” debt from your monthly income, and you can get a picture of what most do when they do that. Where’s all my money going?! Basically, lattes and wine! But seriously, the amount left over is your income minus your debt, and of the left over you can use up to 36% of your total income for a house payment. Granted, I just made that look so simple, but the truth of the matter is, there are several things that go into getting qualified for a loan. To learn more, click here for some different “views” of how to go about getting qualified. NOTE: doing advance research is great, but you want to know what’s even better? A great loan officer or mortgage lender. If you are in the Tacoma area and need one, than I have one that I highly recommend; knows the business like nobody else and is focused on giving you the only advice you need to know either to qualify, or getting you qualified. His name is Justin Glass. You can reach him at 253-208-7879 or email at justinglassknowsloans@comcast.net . I have to let you know that he does not do construction lending. This article is not intended to “push” building a new home, but rather to answer the question, “how to buy a home”. If though you are convinced about building, as opposed to buying a used home, then I would recommend our list of approved lenders.

Once the lender has “pre-qualified” you and your significant other (if you have one), then you can start the real process of finding the perfect floor plan, location, amenities, etc. Will you buy used or go through with the very rewarding process of building a new home? Here is an article that may assist you to determine which path you will take. There are two ways to go about buying a home. Whether or not you buy or build the process is similar. You have to find what you want, negotiate a price, agree on the price and go through what many call “the purchase and sale” arrangement. Having a pre-approved letter from your lender goes a long way to assure the person selling what you want that you qualify to purchase the property. If you elect to have a real estate agent involved, (always a good option) then they can help with negotiations, working with appraisers, lenders other agents, the seller and a whole host of paperwork. If you are buying, then the real estate agent in essence is working for free for you. That’s because most who are selling their home or property have made arrangement to pay both real estate agents. Yes, you could argue that you might be paying for the agent because the seller raised their price to accommodate the cost of having to pay the agent, but that is not always the case. Once mutual acceptance of the land or the home has been made then inspections, typically required by your lender, which you have to pay, will need to be made. When the inspection is finished, depending on what is on the report, you and the seller through your agents, negotiate which if, not all have to be addressed, fixed or repaired, and which ones are not required by the lender to be addressed. Cosmetic items like paint, wood work etc., will likely not be an issue with the bank or lender. However, mechanical or structural issues will be. Sometimes with the sale of a used home, the cost to repair is significant and the seller just does not have the money to have the work done. However, they may agree to allow some of the profit from the sale of the home, if any, to cover the repairs. Items like a busted furnace, or poor roof or bad siding, will more than likely stall the process unless either the borrow or seller agree to have them fixed to the bank’s approval to move the process forward. In addition, like that of a newly constructed home, an appraisal of the property and the future home to be built, or the used home that you might be looking at, needs to be performed, again paid by the person buying the home. A typical appraisal is about $400-500. Some lenders my offer this for free, but you need to confirm.

I think if I were to make a plug at any time on whether to build or to buy new, this is the time. The reason being is that often the appraisal of the new home, say if you are purchasing a True Built Home, will often, if not always, be a pleasant surprise due to the amount of value you will have upon completion of your home. This is no joke. We see in many cases the value determined by an appraisal upon completion of one of our homes is often north of $100k above the cost of construction. Click here for just one example. To be fair, a used home may have some equity, but think about this: if you were selling your home and paid to have a professional appraisal and the value was, say $350k, and you owed $250k, why would you sell the house at $250k? You wouldn’t. You would try to get the most profit you could. So, if you were to buy the house at $325k and it’s value is $350k you would have some equity. However, when building a new home, you should realize an improved equity position than you would with a used home. This is a very basic approach to “how to buy a home”. Here are some review points:

  • It’s all about the money! Find a lender; get pre-approved; find out what you can afford.
  • Start shopping. Either for a used home, or a parcel of land to put a new True Built Home on!
  • If you find what you like you could obtain the service of a real estate agent.
  • Make an offer.
  • Go through negotiations.
  • Mutual acceptance.
  • Get inspections.
  • Negotiate fixes, repairs and cosmetics.
  • Get an appraisal.
  • If the numbers work and you have enough cash to put down on the home, close the deal.
  • Have a double gin martini, or whatever it takes to celebrate or de-stress.
Jul 10
1

FHA Construction Loans

By | Financing | No Comments

FHA Construction Loans Deserve Your Attention

UPDATE: We do not currently work with FHA or VA loans

As the landscape of our market changes (it used to be, even without ownership of the land, a client could obtain 100% financing) we need to be prepared to deal with new realities our clients can face. With that in mind, we have been testing (6.1.2013) a FHA program specialized for construction.  The FHA OTC (One Time Close) program is a very useful tool for us as it’s identical to a regular FHA loan in every way except for one; the house isn’t built yet.  The benefits over a normal conventional construction loan are numerous and a few of the highlights are listed below;

  • 3.5% down payment-As the builder, we collect at the time of ordering the home a “Processing Payment”, it gets the ball rolling, and can apply to the 3.5% needed for the FHA loan program.
  • Credit (FICO) scores can be as low as 620 and still qualify
  • Much more flexible job/work history requirements (it just needs to make sense)
  • Debt-to-income (DTI) ratios up to 50% (although the Dodd-Frank Act is going to lower that eventually)
  • Small reserve requirement –just 2 months PITI (Principle Interest Tax Insurance) post closing
  • Gifts are 100% allowable for the required down payment and/or closing costs. This can include cash or equity in a lot just to name a few examples. All normal FHA guidelines apply where gifts are concerned. For instance, it can come from a family member, but it can also come from a friend who is “like” family where a long-standing relationship can be proven.

Other quirks of the program

  1. Max loan amount $417,000, even if the county max is higher for the FHA in that particular county (i.e Pierce and King county FHA loan  limits are 500k) so the max TAC (total acquisition cost) is $432,125 (432,125 x .965 = 417,000). Now, that doesn’t mean that a borrower couldn’t do a $445,000 build, they would just have a required down-payment a bit higher than 3.5% is all.
  2. Loan closes up front, just like any other FHA loan, so the borrower is never re-qualified. This is huge as nothing can happen to the borrower in the sense of loan qualification which could derail the loan at the end of the build. Once we are closed up front, the borrower never has to worry about not being qualified.
  3. 6 month time frame from the start of construction to modifying the loan for repayment – that means the house built should not exceed 150 days or less.

Because all of the above is true of the program, it does require a close collaboration between the buyer, builder, and lender. Ideally, we want to wait until the absolute last moment to fund the loan, because that’s when the timer starts. So, in order for the loan to close, we need several items (IE all the bids from the builder, and all the cost associated with the rest of the home be it excavation, permit cost, port-a-potty cost etc) all in and added to the final bid. This is what needs to take place in any case with any construction loan, so we are not re-inventing the wheel. However, the cost of obtaining the builder permit cannot be funded by the loan, because again, that would start the loan timer. So, we see it happening like this.

Client orders home after getting pre-approved for an FHA loan. We get the plans submitted to the county, which in most cases requires only a processing fee of no more than $3,000 dollars for most counties. Again, that Processing Payment can be applied towards the required 3.5% down. So, our processing fee from you (the client) when you order the home, will also include the fee needed to submit for your building permit, and or any other processing fee that might be needed for your project. Every project is a little different, so the amount needed when you order the home will change due to other factors.

If you have land or are buying land, we can help with obtaining, and under the FHA guidelines, we are required as the builder to obtain the bids and estimates for all other items pertaining to the home/land construction. Now, as a result of doing the entire scope of the work, and being responsible for any cost over runs, True Built Home will mark up in and all bids, depending on the nature of the bid, 15-20%. Once all the bids have been collected we can set a final build cost. Of course, the county permit is processed and the lender is working on the loan to make sure all the loose ends are tied up.

Once the county calls and lets us know the permit is complete and the lender has given loan approval and is ready to close the loan, we can then have a preconstruction meeting, schedule the excavator for the dig out (he can’t do anything on the land, unless it is the ownership of the clients already, until the loan funds, and the first thing that is done is the land is paid off) and give the lender the green light to fund the loan. That is when the project timer starts and we have 120-150 days to finish the home.

  1. The land is paid for at the close of the loan
  2. The excavator moves in to do the dig-out(generally a day or two)
  3. TBH has already ordered the lumber, foundation steel and concrete
  4. From here things move towards completion.

When the house is finished, there are a few modification papers to be signed which will change the loan from the construction phase to the repayment phase, and then you are ready to move into your new home!

 

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