I have qualified for a rural development [final] loan on a house that I want to build in MT, but can’t find a bank willing to do the construction loan. I need ~$170,000 Construction Loan (including fees) for the 3 months it will take to build the house. Any idea where I (or the builder) can get that kind of financing?
Any help would be appreciated. Thanks!
Have you tried a local bank? I would be surprised to hear that a local bank won’t give a construction loan. They will usually want 25% in collateral.
Be a bit more specific and perhaps we can help.
As I understand it you have qualified for a USDA Rural Development loan.
Do you have a take out committment, ie., who is going to step in when the home is built and lend on it to take out the construction llender?
My understanding is the USDA Rural/Farm/Ranch takes care of most of the paperwork.
Bill -
The bank will do the rural development guaranteed loan - for me - when the house is completed. (I assume that’s what you meant by the take-out loan.) Rural development loans are low (even 0) down payment. Construction loans are generally 20% down, which I don’t have. I have already qualified for the rural development loan (except I have to re-do it according to the loan officer since it would be a straight purchase rather than a construction, then refinance, type of loan).
The construction loan could be done 3 ways…
1- If someone could fund the loan at full cost/value ($160,000), he/she (or the builder if the money was lent to him) could add the fee to the cost & turn around & sell it to me the day after it is built. The contract for my purchase of the completed house would be signed up front.
or
2- If someone wanted to be the person contracting with this (or any) bank to build the house, that person would only need 20% down ($32,000) + closing fees. Then that person could sell it to me the day after completion for the total cost + a couple thousand dollar ‘fee’ for doing this. Again, the contract for my purchase of the completed house would be signed up front. Not a bad return for ~$36,000 investment + a little time to arrange the construction loan - with a payoff in only 3 months. This is the cheapest way to do this, but the bank makes a fee (points, interest) on the loan also.
or
3- An entirely different option – The builder currently has a 3BR/2BA/1200 sq ft ‘spec house’ that is almost completed. It could rent out for approx. $700. per month. He has listed it for $85,000. & he will pay closing costs - not a bad investment. If someone were to buy that house, the builder would then have enough cash (with a relatively small additional loan) to then build my house.
Does this clear it up a little?
Linda
Yes, Linda, thanks.
You have covered the basics very well.
Now we gotta figure out how to get $32,00 in the kitty so the bank will do the construction loan.
Got any other collateral you can put up to help the bank be satisfied that their investment is secure.
Have you tried a hard $$$ lender for the 32K?
Where are you in MT, Billings, Great Falls, Missoula, Helena, Anaconda, Deer Lodge, Butte, Kalispell, Whitefish, Dillon…or points east.
If your spec builder is building for cash perhaps he could take out a 32K loan and use it to get the loan to build your home.
Hi Bill -
According to the bank, I am not allowed to borrow the $32K. I could only receive it as a ‘gift’ from a family menber (not a possibility). That’s why the person with the $32K + closing costs would have to be the person getting the construction loan. But that person could make a damn good profit for less than $40K (& a little involvement) in only 3 months if he/she were interested.
Re: other collateral, I have several vehicles & other items (ie. ~$4K storage container), including a box truck I bought to move my things to the new house after the bank originally told me they could do the loan for the same down pmt as the rural devel. loan, & a whole lot of collectibles (at least $25K worth) that are not easy to sell quickly. (I’ve been selling toys on ebay for many years & it takes time - unless someone wanted to just buy everything - haven’t found anyone like that.) I lost all of my equity (close to $50K) in my last house when the banks started dumping newer homes from a huge nearby development (foreclosures) on the market en masse. I do have very stable income, though.
The new house would be closest to Polson (in terms of larger towns). The builder has most of his cash tied up in the spec home & a ranch he bought when he moved there, so I don’t think he would do the entire loan. But he said he would do it if the spec house sold & he could use that cash. That’s probably my best option at this point. My problem there is that I don’t have a long time to wait, as he can’t start building after the ground freezes. So the spec house would have to sell quickly. It’s a great deal ($85K for a house that could rent for ~$700/mo.) & I’m sure it will sell, but maybe not in time for me to build.
By backup plan would be to buy the only mid-size single story house for sale in the town & re-do the interior & exterior to make a handicap access bedrom, bath, flooring, ramps, etc. I would wind up with a much smaller house for the same money or more (& much older with more potential problems) - assuming the seller would take less money than he is asking & write a contract with allowances. If I build, the whole house would be handicap access, laid out exactly the way I want & larger than that existing house. (I designed it.) And the piece of property I had found to build on is amazing - for only $23K. Everything would be new & unlikely to break down in the near future. I normally couldn’t afford to build a house like this, but I found this builder who is relatively new to the area (but with 30 years experience in other states) & willing to build inexpensively (ie. using subcontractors). It’s a once in a lifetime opportunity to get a great house at a fantastic price. But time is almost up. A hard freeze happens earlier in MT than other states & I need to move before the end of the year.
Linda
PS- Thanks for any help you can give me!
Thanks again for the update.
The only thing that comes to mind now is perhaps you can option the property for a minimal sum, say for a year, try and sell come of the collectibles that you have and do the deal next year after the spring thaw.
The option would allow you to hold on to the property for the duration of the option.
Yep, MT does snow often and early. Had to cancell the fireworks for the 4th of July in Butte one year due to snow.
Left MT because 49 BELOW is too damn cold for this old codger.
Good Luck
Unfortunately, that is not an option. The property was only being sold as a larger group & the builder was going to buy half of the group of lots (with profits from my house to do more spec houses) as part of the land purchase deal. He won’t buy half if I’m not able to build my house. Secondly, I have to move by the end of the year (preferably sooner).
It sounds like there’s no way to find an investor to help with this - even though making 10% on $40K (& a little involvement) in 3 months ($4K) is a good deal (=~40% annual rate not compounded).
If the builder’s spec house sells in the next 1-1/2 weeks, I still have a shot at doing this. It’s a great deal. Otherwise, I guess I have to try to retrofit into the only existing home available - at the same or higher total cost as building from scratch to get a larger/newer/totally handicap-access house. (That’s assuming that I can get the loan officer at the bank to understand that there is a difference between writing a contract to include allowances vs adding money to a lower contract to get a higher mortgage. They don’t seem to understand allowances here… Sad that there doesn’t seem to be any way to just build that great house.