Building shop financing options

[Husky79]

Hello all, I just purchased a 37 acre land, and now my bank that I got the loan with for the land says they can't give me loan for a shop, said it has to be a liveable home.

When I first talked to them about loan for the land I asked them would they be able to give me loan to build a shop, they said yes. Now after purchasing the land they say no.... I'm really disappointed.

Is this common with other banks not willing to lend for a shop? I can't go to a different bank for a loan? I am new to this. Hopefully someone can give me a suggestion what I can do.

Based on my current knowledge on lending is that my only option is to save up and buy a kit or build from scratch.

The specs I want is 50x64x15 with one 12x14 door and one 10x10 door with one walk in door. No windows.

 

[ManOnTheCouch]

Most sellers of shop building kits and many shop building companies can direct you to viable financing options.

Most banks dont want to lend for just a shop as the value of the property is in the land. If you default, they're not likely to recover what they've loaned you. You are certainly free to shop different banks though.

 

[Hilltopmasonry]

A shop isnt worth much value

A home is

Sounds like you are over-leveraged on the property and the bank doesnt want to get screwed if the deal goes bad

You probably need more equity in the property before they will loan you more money

You have either two options, use another property or personal savings/retirement as leverage to secure a loan or you’re going to have to do some leg work to find a company that is willing to loan you money

A third option is to pay cash for the build




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[Husky79]

Most sellers of shop building kits and many shop building companies can direct you to viable financing options.

Most banks dont want to lend for just a shop as the value of the property is in the land. If you default, they're not likely to recover what they've loaned you. You are certainly free to shop different banks though.

So are you saying that I can get financing elsewhere even though I still have mortgage on the land?

 

[csi123]

So are you saying that I can get financing elsewhere even though I still have mortgage on the land?

You can get a non secured loan, not a mortgage. There isn't anything that can be sold off by the bank if you cant paid your loan. A shop on a piece of empty land isn't something worth anything to anyone except you.

 

[Jazz1]

You don't meet the banks criteria to borrow more money. You are likely going to have to go to a "B" lender and pay higher interest rate.
There is nothing personal about loans, you fill in the blanks on application and the lender submits the info to underwriting who determines NE or Ye.

 

[Falcon67]

Same/same - our credit union even has a similar policy and a minimum before they will write a mortgage. A big minimum. And not on a shop or barn. We financed our shop using *** Pocket National.

 

[TractorJeff]

The specs I want is 50x64x15 with one 12x14 door and one 10x10 door with one walk in door. No windows.

16 foot walls, no sense in cutting a foot off from every board that you paid for!

 

[protegeV]

I've had good success with sofi. If you have good income and good credit they have decent rates for loans up to $100k

 

[ddawg16]

To be honest, unless you are going to be running a business out of it, if you have to finance it, then maybe you shouldn't build it right now.....

I paid cash for mine as I went along....well....sort of....I put all the materials on the CC and did most of the work myself.

Exception was the foundation. That is a big chunk of cash in one go....I saved up for it....then used the CC's for the rest.

Within 2 years it was all paid for.

The 2-story addition to my house was a different story. On it, I took a loan out against my 401K....and that got paid back via payroll deductions.

I basically doubled the size and value of my house....and it's all paid for.

 

[Grimpala]

To be honest, unless you are going to be running a business out of it, if you have to finance it, then maybe you shouldn't build it right now.....

....I put all the materials on the CC and did most of the work myself.

....then used the CC's for the rest.

Within 2 years it was all paid for.

I might be a little slow, but isn't this the exact same thing as financing?

 

[protegeV]

I might be a little slow, but isn't this the exact same thing as financing?

You catch on fast.

yeah, it's about the same

 

[PWC Repair]

If you have good credit a personal loan should not be a problem. That being said, I decided I just couldn't hand over the interest so I built with cash. Done in stages as I could afford it mine took 5 years. My buddy had his up in 1 year but will be paying for the next 10 lol!

 

[ddawg16]

I might be a little slow, but isn't this the exact same thing as financing?

Kinda....except you don't have to get a loan....and your cc balance only goes up as you buy ****. If you can't get a loan....it might be your only option.

Some CC companies will do loans with a low interest for 1 year.

 

[930dreamer]

After you build a house they will loan you the money for a shop is what the bank was thinking??

 

[ard]

Cant fault the bank for not wanting to loan on a 'shop only'. Honestly, every once in a while we see posts here with guys looking at 'land with a shop' and the incremental value of the shop seems to be 6 bucks.

That a bank employee lied? Huh. shocker.

Just gonna have to self finance. Maybe if the land is paid, or more paid, they might. But get that in writing and from more than just one bank.

 

[3onthetree]

Banks will not issue a conventional mortgage for a "shop." Your credit, the land value (not as valuable as a home BTW), and whether they conned you is moot. Banks need to follow Fannie Mae guidelines with mortgages so they can be sold. That means it must be a habitable home.

If it was income producing, you would move to commercial lending. If it was agriculture, there are other avenues. Probably when you originally were just "talking" to the bank, they just assumed 37 acres would have a house + detached garage (your "shop") someday if no plans were submitted during the land purchase. They probably weren't lying, just didn't know your concrete plans as it was just talk.

Your financial situation will determine how you pay for it. If its $25K vs 75K makes a big difference how you finance.

BAD advice to put it on a credit card, that's crazy to pay a rate in the upper teens (or in the 20s) that can increase anytime, and sink your credit score with high balances.

If you are allowed to borrow from your 401K, the "interest rate" you're paying is essentially the lost compounding of not having that money there, plus they will probably require an actual "interest rate," but you are paying that to yourself anyway which will offset some lost compounding. Also if you can't pay it back, you take a 10% hit on your taxes plus it's added to your income.

An unsecured personal loan might have a rate around 10%, but the amount they lend may be much smaller than your construction cost. You could discuss with a bank on securing it for higher amounts.

A home equity line of credit may be best if you have that available, the rate would be much more reasonable compared to the other routes.

 

[ez-duzit]

Hello all, I just purchased a 37 acre land, and now my bank that I got the loan with for the land says they can't give me loan for a shop, said it has to be a liveable home.

When I first talked to them about loan for the land I asked them would they be able to give me loan to build a shop, they said yes. Now after purchasing the land they say no...

If you owned the land they would give you a loan for a shop. But you don't own the land and are now have additional debt you didn't have when they approved the shop loan.

 

[jjtrou2072]

Any chance you could add a kitchenette, bathroom, and a bedroom and call it a day.

I built a 40X50 shop with a 1 bedroom, 2bath layout. Got it permitted as a house. However I didn't get a mortgage for my build so not sure a bank would have went for it. The county had no problem calling it a house though.

 

[SouthLake]

Any chance you could add a kitchenette, bathroom, and a bedroom and call it a day.

I built a 40X50 shop with a 1 bedroom, 2bath layout. Got it permitted as a house. However I didn't get a mortgage for my build so not sure a bank would have went for it. The county had no problem calling it a house though.

Can’t believe it took 19 posts to get here. THIS ^^

 

[3onthetree]

Any chance you could add a kitchenette, bathroom, and a bedroom and call it a day.

Can’t believe it took 19 posts to get here. THIS ^^

Hasn't been mentioned because now you'd need septic and well for starters, and have increased your total construction cost probably 1/3, and have to pay heavy real estate tax on a homestead beyond that.

 

[SouthLake]

You need those things anyways.

 

[jjtrou2072]

I assumed a shop on a vacant 36 acres would include septic and water unless the intended purpose is storage.

If storage is the main purpose I would save my pennies and build a pole barn.

 

[NUTTSGT]

Kinda....except you don't have to get a loan....and your cc balance only goes up as you buy ****. If you can't get a loan....it might be your only option.

Some CC companies will do loans with a low interest for 1 year.

CC are only bad if you use them incorrectly. Like John mentioned, some do loans with set rates and payment schedules. You just have to read the fine print and follow their rules.

Most big box stores offer six months interest free on charges over $300. If you can swing the payment, build in stages and not get yourself in trouble, this can work for you. Basically it's nothing more than paying as you go

 

[99ls1tj]

Any chance you could add a kitchenette, bathroom, and a bedroom and call it a day.

I built a 40X50 shop with a 1 bedroom, 2bath layout. Got it permitted as a house. However I didn't get a mortgage for my build so not sure a bank would have went for it. The county had no problem calling it a house though.

Care to share the county you built in? I’m looking for land in North Georgia to build a barndominium?

 

[yeldogt]

Care to share the county you built in? I’m looking for land in North Georgia to build a barndominium?

All you have to do is find out if it's allowed and how they tax it .... some get taxed as a house. Some can't be built at all based on sf of living.

The OP back in 19 ran into a typical problem ... that someone should have explained. Banks don't lend into problems. Land that can be sold is fine .... land with a building that only you find value in is a problem. It's a cost -- removing the building to make the land valuable again is not something a bank is going to want to lend into to begin with.

Lending is area specific .... if you happen to be in an area where people build and want "Barnominium" ... I'm assuming this is a metal pole type building. Banks have some history and knowledge and may lend.

Also -- getting a loan .... and getting a loan with a good rate are two different things.

When in my 20's a local banker (we had them back then) told me something I never forgot. Banks only loan you money at the best rates when you don't need it -- always have a low rate HELOC locked in when you can. When and if you even need it -- they will not give it to you .

 

[Metallitubby]

Care to share the county you built in? I’m looking for land in North Georgia to build a barndominium?

My build is in Cherokee County, and I used UCBI in Jasper.

 

[Samh]

When in my 20's a local banker (we had them back then) told me something I never forgot. Banks only loan you money at the best rates when you don't need it -- always have a low rate HELOC locked in when you can. When and if you even need it -- they will not give it to you .

Someone said it this way. A banker will lend you an umbrella when it is sunny, and ask for it back once it starts raining.

 

[Samh]

Care to share the county you built in? I’m looking for land in North Georgia to build a barndominium?

What county are you considering north georgia? There are several that have built in Cherokee county.

 

[nadogail]

The questions that come to my mind are;

How much money will you need to borrow?

What size of payment will you be able to make?

How much time will you want to repay the loan?

Looking forward to reading your answers.

Any advice I would give would depend on the answers to those questions.

 

[mepstein]

Can you do a HELOC on your house? Rates are around 3%

 

[nhdiesel]

Good luck. We went through this ourselves. We were going to build a 40x60 building with the house on the 2nd floor (40x20 house over part of the shop). No bank would approve it. We already owned the land outright. It didn't really matter though, because we couldn't find an insurance company to cover it.

Now we finished building a regular house instead and it's time to build a shop, and I'm going to be stuck building a small (30x40 or 50) over time because nobody will finance a shop.

 

[yeldogt]

Good luck. We went through this ourselves. We were going to build a 40x60 building with the house on the 2nd floor (40x20 house over part of the shop). No bank would approve it. We already owned the land outright. It didn't really matter though, because we couldn't find an insurance company to cover it.

Now we finished building a regular house instead and it's time to build a shop, and I'm going to be stuck building a small (30x40 or 50) over time because nobody will finance a shop.

The second you go outside the "box" ... it's just difficult. The vast majority of loans get sold off -- if they don't fit in that "box" the lender (to you) can't sell it off. Banks in farm country will do lending on things an urban bank will not even consider ... reverse true as well.

You also discovered the insurance trap -- I own a building that my insurance company covers because they do all of my insurance .... they would not if it was the only property.

I was shocked when I had my fire back in 2012 .... was looking for a construction or bridge loan. Something that was not a problem in years past ... no one wanted to give me one. It was a bit more difficult in 12 -- but banks moved away from anything but white bread lending.

Living in the city I have known many people who wanting a weekend in a rural area ...buy land that sits until it gets sold off after they understand the problems and costs of trying to build.