Looking for some feedback. I'm getting pricing completed on a detached garage with an apartment above. My goal is to do a construction loan/mortgage or home equity mortgage to fund it and do a large amount of the work myself. So the question is- what has been people's experience with this? Was the bank okay with you doing the work yourself? I'm in South Carolina and you do not need to be a GC here to build on your own property, but not sure about the bank. Thanks
Diy Project funding - mortgage
- Thread starter Yeager
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My recent endeavor, I cashed out with a refinance on my existing mortgage. I did put an addition on a while back where we got a loan, I don't remember what it was called, but it was basically a line of credit up to the amount I needed/qualified for, and our payments were based on how much we spent. I think once the addition was completed we refinanced into a single or traditional 2cnd mortgage, for a lower interest rate and monthly payment. The available loans and rules may have changed since then.
firebirdparts
Well-known member
You could certainly run into trouble with the bank's concept of Cost vs. Appraisal increase for that type of building. When you take out a construction loan for a house, they expect to have a house if they foreclose on you.
It was a Loans In Process when I did a bunch of work to the house.
Turn in the receipts for the part of the project I was working on, the bank appraisal members would come check it out and approve it. Id go back later in the week and get a check.
Turn in the receipts for the part of the project I was working on, the bank appraisal members would come check it out and approve it. Id go back later in the week and get a check.
Smiles79
Well-known member
Are you thinking of a HELOC?
Some, if not many, lenders might disapprove of such a DIY project imwo (in my worthless opinion). But then again, I've seen a fair number of half started and never finished construction projects (detached and attached) here in S. ID and N. CA. Good luck and I hope it works out for you!
Juiced06GTO
Well-known member
I did a HELOC on my current property to help finance my barn build. You need to have the equity in your current property to be able to do it, they will usually only let you borrow up to 80% of the assessed value, they will not take into account the value of whatever you plan to build. I was approved for 90K and used 73k and probably another 30k out of pocket. I could have ridden out the HELOC and just paid it back over the next 20 years at a variable 3.49%, instead I just refinanced the entire property using a cash out refinance to pay off the HELOC. The new mortgage is 10 years at 2.25% fixed. I was also able to keep the original 90K HELOC open, with a zero balance on it for any type of large emergency should it come up. I plan to continue paying for the rest of the barn in cash to get it done.
I had previously looked into a home improvement loan to put an attached addition on with garage, but it didn't make sense. The work had to be performed by a licensed contractor, and they gave an appraisal based off the plans submitted. When I did it originally I didn't have enough equity, even after the new addition to avoid paying mortgage insurance to the bank. I ended up waiting a few years, hitting the principal on the house hard with extra payments, and going with a detached 30x40 that I could do a lot of the work on myself after having a contractor put up the shell. This allowed me to avoid any of the stipulations that go along with the home improvement loans and bank dispersements. The bank has no care at all what you use the HELOC for from what I saw, I could have bought a boat, gambled it away at a casino, or built a barn, they never questioned a check I wrote from that account.
I had previously looked into a home improvement loan to put an attached addition on with garage, but it didn't make sense. The work had to be performed by a licensed contractor, and they gave an appraisal based off the plans submitted. When I did it originally I didn't have enough equity, even after the new addition to avoid paying mortgage insurance to the bank. I ended up waiting a few years, hitting the principal on the house hard with extra payments, and going with a detached 30x40 that I could do a lot of the work on myself after having a contractor put up the shell. This allowed me to avoid any of the stipulations that go along with the home improvement loans and bank dispersements. The bank has no care at all what you use the HELOC for from what I saw, I could have bought a boat, gambled it away at a casino, or built a barn, they never questioned a check I wrote from that account.
It doesn't work like that on bigger $50K+ loans. And such is nothing at all like a credit card where the typical max line of credit is $25K. I'll also note that the phrases "have to pay back" and can "pay back" have two very different meanings. Lenders always take into account the probability (i.e. your credit rating) that you'll pay the loan off as well as the possibility that you'll default on the loan. If your assets (home, etc) are enough to cover the loan then the lender will almost always require that you sign off on such as collateral (which means the lender can seize such assets if you fail to pay on the loan.
theoldwizard1
Well-known member
Banks HATE anything DIY l
Renegade1LI
Well-known member
You’re taking a loan against your house, you can use it for anything, buy a boat out rv. It would be different if it was a builders loan for a new home. They’ll give you up to 80% depending on your credit. Helocs are great for doing just that, than remortgage everything into one when rates are low.
There are a couple different names for what amounts to the same type of loan ..... equity against you primary home.
There are loans that can be based on the final value of the project if the current equity is not enough -- little harder to get. If you know the amount that the project will cost you can get a fixed in both of term and interest. Otherwise a line of credit --- HELOC is the way to go
There are loans that can be based on the final value of the project if the current equity is not enough -- little harder to get. If you know the amount that the project will cost you can get a fixed in both of term and interest. Otherwise a line of credit --- HELOC is the way to go
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Pen & Wrench
Well-known member
I used to do home lending and every once in a while someone wanted to do their own construction, while working full time. Banks / Lenders want things completed in a certain timeframe, like 6 months or less on a home build when I was in the business. Most banks want to convert a construction loan to a permanent loan in their timeframe. People that work full time plan to work hard and get it done, and life tends to get in the way, and many are unable to complete the project in the time originally agreed on with the bank. A banker will want you to prove to them that you can do what you say you can, and especially in the timeframe agreed on. My suggestion is to be very conservative on how fast you promise to get things done unless you have a plan B when (probably not if) things go off schedule. If you can keep the loan to value under 80% they may be much more agreeable on the timeframe. I agree with the others, a HELOC would probably give you a lot more freedom in your construction schedule.
I did a $112k HELOC for my shop. That's the max of what the bank would give based on their appraisal. They didn't care how I spent the money (DIY or contractor). Interest was variable - 1 point above prime.
Careful how you pitch the 'apartment' to your building dept people. I wasn't allowed a secondary occupancy at all. Hard enough to get a toilet rough-in.
Careful how you pitch the 'apartment' to your building dept people. I wasn't allowed a secondary occupancy at all. Hard enough to get a toilet rough-in.
Dreamer1975
Well-known member
You can get a HELOC under a line of credit at most banks. Some will be with a variable interest rate which can flux but most will give you time to refinance if it starts to go up and you dont pay attention. I’ve used the a lot in the past and the good thing is that the only charge you interest on what you use. So if your not working on it full time and only buying what you need when your doing each part of your project you could sVe a little while paying down as you go. You just have to keep a close eye on your rate.
HoosierMark
Well-known member
You need to think like a banker. They want to loan money and have good loans. Loaning to DIY people typically results in a lot of half done projects that are short on money and cause them problems. If you can show them that the end product will be good collateral for the loan to a person that has a good track record on paying, they will work with you. It is not about most things people think it is. It is about the loan officer having a good loan portfolio with few problem loans. Present a plan to the lender showing you have a good chance of success and you will be OK. The plan and your ability to carry it out are the key ingredient for this type of loan. They loan to builders because they have a track record of completing the project.
reader2580
Well-known member
There are companies out there that advise people who want to be their own GC. They have access to construction loans that the average person may not have access to. In most of these cases the future homeowner may not actually do any work on the house beyond maybe painting the interior. My brother went this route with his house, but he and his wife did at least $50,000 worth of labor on the house.
FredWanaker
Well-known member
For a conventional construction loan they must be in first position meaning the house must be free and clear. The will want approved plans. They will want a time table that you will adhere to for advances. They will inspect the work to be sure it is done before the next advance. Normally those loans have a floating interest rate and the Fed is about to raise rates to we don't know how high.
For a home equity loan, new first mortgage, or line of credit, it will be based on present value, not future value. If you have enough equity to borrow the amount you need to do the work then it would make sense only if the math works out.
There are government FHA loans that do that sort of things but the contractors and materials used must be FHA approved, and sometimes they charge more because of it.
You may find a private investor who would lend you the money if you plan on selling it for a profit when done. These are how most of the home improvement restorations you see on TV get done, although some are done thru a series of grants and money from TV revenue, and sponsors who want their name in front of people.
What you have to come to understand is that you want the same thing most everyone does, money. And people who have money to lend know that. The banks and lenders aren't in the gambling business.
For a home equity loan, new first mortgage, or line of credit, it will be based on present value, not future value. If you have enough equity to borrow the amount you need to do the work then it would make sense only if the math works out.
There are government FHA loans that do that sort of things but the contractors and materials used must be FHA approved, and sometimes they charge more because of it.
You may find a private investor who would lend you the money if you plan on selling it for a profit when done. These are how most of the home improvement restorations you see on TV get done, although some are done thru a series of grants and money from TV revenue, and sponsors who want their name in front of people.
What you have to come to understand is that you want the same thing most everyone does, money. And people who have money to lend know that. The banks and lenders aren't in the gambling business.
When I built my house, I took out a construction loan. I DIY built the house myself. Pretty much all of it. I cleared the lot. Subbed out the excavation and foundation. I framed the shell. Hired a mason to build the chimneys. Hired a guy to install the oil tank and the oil burner. Hired a crew to hang and mud the drywall.
Framing, roofing, siding, windows, doors, plumbing, electrical, radiant floor heat, insulation...flooring, tile, built all my own cabinetry, trim work, painting...that was all me.
I presented a package. Budget, timeline, drawings. Took a few tries but I found a bank to offer me a construction loan that after getting the CofO would convert to a 30-yr fixed. I had 12 months to get the CofO. Got it in 10 months.
I think the loan came with an offering of 4 draws. I asked for 6 and they gave it to me. Did the sitework, excavation, got the foundation in, and the framing done...call for a bank inspection. A guy would come out see the work was done and they'd release $**,000 to cover those costs, the first draw done. Rinse and repeat.
Have a timeline. Know what you're doing. I built solo, my wife helped here and there. My kids were young, 3 and 5 years old. But they were good for organizing cutoffs. If I needed a 34" long 2x6, why it was right there! But my wife was also a great as a go-fer. I worked my tail off, sun up to sun down. My wife did to. A sort of funny memory was her covered in oil-based primer after using a 4" paint brush to prime a little over 5000 linear feet of cedar clapboards on painting racks we cobbled together. She kicked tail. Never whined. Just helped when and where she could.
Finished construction and went into the bank to do the paperwork to convert to a 30-year fixed. The women at the bank said they had a pool, with everyone guessing how long until I gave up and walked away from the build. No one thought I'd finish the house, which wasn't a bad bet as this was before I owned air tools. Heck, before I owned many tools at all. So they gave the money in the pot to me! A couple years later I converted to an 8-year fixed. Then paid that off a few years early.
Have your ducks in a row. Let them know you have the tools, the know how and the time to get it done. And the resources as well.
Good luck with it!
Framing, roofing, siding, windows, doors, plumbing, electrical, radiant floor heat, insulation...flooring, tile, built all my own cabinetry, trim work, painting...that was all me.
I presented a package. Budget, timeline, drawings. Took a few tries but I found a bank to offer me a construction loan that after getting the CofO would convert to a 30-yr fixed. I had 12 months to get the CofO. Got it in 10 months.
I think the loan came with an offering of 4 draws. I asked for 6 and they gave it to me. Did the sitework, excavation, got the foundation in, and the framing done...call for a bank inspection. A guy would come out see the work was done and they'd release $**,000 to cover those costs, the first draw done. Rinse and repeat.
Have a timeline. Know what you're doing. I built solo, my wife helped here and there. My kids were young, 3 and 5 years old. But they were good for organizing cutoffs. If I needed a 34" long 2x6, why it was right there! But my wife was also a great as a go-fer. I worked my tail off, sun up to sun down. My wife did to. A sort of funny memory was her covered in oil-based primer after using a 4" paint brush to prime a little over 5000 linear feet of cedar clapboards on painting racks we cobbled together. She kicked tail. Never whined. Just helped when and where she could.
Finished construction and went into the bank to do the paperwork to convert to a 30-year fixed. The women at the bank said they had a pool, with everyone guessing how long until I gave up and walked away from the build. No one thought I'd finish the house, which wasn't a bad bet as this was before I owned air tools. Heck, before I owned many tools at all. So they gave the money in the pot to me! A couple years later I converted to an 8-year fixed. Then paid that off a few years early.
Have your ducks in a row. Let them know you have the tools, the know how and the time to get it done. And the resources as well.
Good luck with it!
nadogail
Well-known member
I have used a HELOC, home equity line of credit, to buy a new car and remodel a house. It was the easiest and cheapest way to get money.
When I bought our new, at the time, Volvo they were amazed when I told them I would be writing a check for the entire amount of the cost of buying the car.
The HELOC also covered the cost of adding the elevator to my present home.
We also used a HELOC to make the 20% Down Payment on a rental property, we had a tenant ready to move in and give us Positive Cash Flow the day the loan closed.
When I bought our new, at the time, Volvo they were amazed when I told them I would be writing a check for the entire amount of the cost of buying the car.
The HELOC also covered the cost of adding the elevator to my present home.
We also used a HELOC to make the 20% Down Payment on a rental property, we had a tenant ready to move in and give us Positive Cash Flow the day the loan closed.
ncornilsen
Active member
I just finished building a house. My bank insisted that it be Budgeted for a GC to do everything and be "on the hook" to finish if I died/fled/gave up. They said if I did work it was between me and the GC, who was ultimately accountable. Worked out good. We had a house build budget of $435K, which assumed I wouldn't pick up a hammer. We closed with costs of $385K... after adding some features, absorbing material price hikes, and hiring out quite a few things. Finding a GC to partner with might be a way to do it.
Preferably, I'd do a cash out re-finance if your rate isn't the best, and use that cash without having to deal with the bank.
Preferably, I'd do a cash out re-finance if your rate isn't the best, and use that cash without having to deal with the bank.
CDPLUCKER
Active member
Also just finished my house as well, because i did it on my own leisurely time line, a standard constuction load would not work for me, so i used savings, sale of a rental house, and a a loan from my dad to make significant progress, i made it to drywall before i ran out of money. at that point the bank was super easy to work with because the loan to value was really good, they could easily get their money out . when got to the last draw, I pulled the money out and paid off my dad and evryone else i owed. then I closed on the mortgage with only 180k owed on a house worth $510k
ddawg16
Well-known member
When I did my garage, I did a credit card loan (it was a good rate)
When I did the 2-story addition to my house, I took a loan against my 401K. I had to pay something like 5% interest....but I was paying it back to myself.
When I did the 2-story addition to my house, I took a loan against my 401K. I had to pay something like 5% interest....but I was paying it back to myself.
401k loans have their set of rules and pit falls:
1. When the loan is out………your missing the market, so it might cost you 5-10-15- 20%.
2. If you lose your job for any reason the loan is due in 6 months. Penalties and taxes are very high.
3. New money into the 401k is on hold.
4. Your retirement is at some risk.
5. Your paying your self interest on your money.
The rules will vary with each plan.
You can borrow against a 401 .... w/o removing the money. You are basically locking out that money and all the fees and taxes from any other use .... it's an odd duck and the ones I have seen are done internally by whoever is holding the account
Home equity lines are typically the easiest way for most people to get a loan at a good rate .... I always advise people to get one even if they don't think they need. Lines are a great way to manage rental properties. When I was starting out the line on my principle was an easy cushion for any strange expense ... later it became the way I ran them all. All expense went out of my line and all the rents went in .. I even used it to pay off some higher rental based mortgages when they fell into the loans range. I never cashed out my rentals -- everything went to the line.
One day it's all paid off
When I did a heloc from my bank, it was the easiest, cheapest way to borrow money, paying it back was easy to set up since it was the same bank and I didn't have to do any ID verification. They did a computer appraisal so it was all quick and easy.
sjvicker
Well-known member
Look into a cash out refi as an option. Today's interest rates may make that a horrible idea but as long as your credit and home equity are there the money comes with no strings other than the increased monthly payment.
nadogail
Well-known member
With a HELOC you are your own bank, (sort of) you don’t pay interest until you write the check against the line of credit and there’s no pre-payment penalty for paying the loan of quickly.
DGersic
Well-known member
About 20 years ago, I did a HELOC through my credit union to pay for a major remodel. Had up to $120K for seven years. Spent $75K in two months on the remodel. The next year, had to unexpectedly spend $20K on repairing a failed sewer line, so the HELOC was helpful to have available.
At seven years, it auto converted to a standard mortgage loan with eight years to pay off at a fixed rate.
At seven years, it auto converted to a standard mortgage loan with eight years to pay off at a fixed rate.
njk4o5
Well-known member
Cash out REFI > Everything
Construction loan is the worst idea. Dealing with the bank and their demands is a PITA especially if you have other options. Be very careful if you go this route.
HELOC somewhere in the middle.
Construction loan is the worst idea. Dealing with the bank and their demands is a PITA especially if you have other options. Be very careful if you go this route.
HELOC somewhere in the middle.
HELOC is how I did our addition to the house. I acted as GC, hired out some, self-performed some.
Timing was good after project was done as far as interest rates so I did a complete Refi and ditched the HELOC and variable rate. In hindsite I might have been better to keep paying HELOC and original mortgage for the whole debt free thing. I am also nearly maxing out retirement and other savings and those have well outperformed what my interest costs have been on the outstanding loan.
Now if there were some serious wage growth to go with this inflation .... that mortgage would seem downright small.
Timing was good after project was done as far as interest rates so I did a complete Refi and ditched the HELOC and variable rate. In hindsite I might have been better to keep paying HELOC and original mortgage for the whole debt free thing. I am also nearly maxing out retirement and other savings and those have well outperformed what my interest costs have been on the outstanding loan.
Now if there were some serious wage growth to go with this inflation .... that mortgage would seem downright small.