Hola all

Does anyone have any experience with construction loans?
Looking to build a house and hangar, or maybe just the house and I’ll slowly cash build the hangar myself, probably easier than a loan for a hangar with an apartment in it

I’ve built some stuff myself but not a full house, looking for a good economic option, where I can convert into a mortgage after it’s done, I already own the land

Thanks!!

We just converted a construction loan to a mortgage with Hapo last fall for a new house build. Hapo was ok to work with, not necessarily great but it worked out as far as the bank side of things. The budged got laid out up front, $X for roof, for framing, etc and if that goes over you have to shuffle things around, so having that figured out well at the beginning is helpful, and once you get rolling keeping the project moving will help avoid cost overruns with material/labor increases.

The contractor side of things turned into a mess and nearly cost us our locked in interest rate due to their nearly double estimated timeline and in the next 30 days we'll be finding out if it is going to be merely expensive, or REALLY expensive for the lawyer fees that are coming out of that. Short story is the contractor didn't do, or didn't do right $75,000+ worth of stuff, but say we owe them $20+k for things that weren't done or done right.

Number one lesson from this is pick your contractor carefully!

Just went through this process. Be certain to ask about details on the construction loan. Mine amortized daily on the borrowed amount once I started borrowing. The interest rate on the construction loan was considerably higher than the mortgage it converts into. The construction loan required builders risk insurance—which, in my opinion, you should seriously consider anyway. In an interesting twist that changed my financing plans, the bank dropped it on me last minute that the house portion of the “hangar/home” had to be 60% of the footprint in order for the loan to be approved. That’s where financing with that particular bank fell apart.

As an alternative, you can seek out a "hard money" (private) loan. Tends to be faster and easier as long as you have some trust built with the lender and you have collateral. Credit scores are not a factor with hard money loans. I was able to leverage hard money loans to build some business ventures and now I loan some of them out from time to time as an excellent semi-passive income.

Thanks!

I’ll look into some of those lenders, did any of you guys also do some of the work yourself?

Floors, paint, finish stuff, gutters, etc I’d probably prefer to do myself both to save money and for attention to detail

Home attached hangar: we did nearly 40% of the work ourselves. Work with lender on time frames and get it all in writing so there are no questions.

MAJOR item: contractor- get a very detailed list of what they are doing, types of materials that will be used and especially a time frame that must have allowances for any work you plan on doing yourself. We were the general contractor so it was up to us to schedule the different sub-contractors. There were some times we worked all night on our small projects to be ready for the next sub-contractor. Once you screw up their schedule, getting them back can be lengthy.

NineThreeKilo wrote:Thanks!

I’ll look into some of those lenders, did any of you guys also do some of the work yourself?

Floors, paint, finish stuff, gutters, etc I’d probably prefer to do myself both to save money and for attention to detail

Yes, we did all the interior finish work ourselves from subbing out the sheetrock and on (paint, doors, trim, flooring, bathroom cabinets/fixtures)

I would never hire a general contractor again. Complete and total waste of money.

Our construction loan was the same interest rate as the mortgage it rolled into, set up at the late 2021/early 2022. Payments went up as draws happened and there was a drop dead date the occupancy permit needed to be in hand to convert to mortgage otherwise the mortgage interest rate would need to be renegotiated. We made it by just a few weeks!

PilotPeat wrote:

NineThreeKilo wrote:Thanks!

I’ll look into some of those lenders, did any of you guys also do some of the work yourself?

Floors, paint, finish stuff, gutters, etc I’d probably prefer to do myself both to save money and for attention to detail

Yes, we did all the interior finish work ourselves from subbing out the sheetrock and on (paint, doors, trim, flooring, bathroom cabinets/fixtures)

I would never hire a general contractor again. Complete and total waste of money.

Our construction loan was the same interest rate as the mortgage it rolled into, set up at the late 2021/early 2022. Payments went up as draws happened and there was a drop dead date the occupancy permit needed to be in hand to convert to mortgage otherwise the mortgage interest rate would need to be renegotiated. We made it by just a few weeks!

Did the bank have any issues with you being your own GC?

Can you share which bank?

I GCd my current house and did about 20% of the work myself. Subd out the rest. Be sure you have a good subcontractor agreement template / clear expectations. Even if you know the sub personally, that doesn’t mean there can’t be issues. Contractors make a killing on change orders.