# Funding for first spec house?



## ruskent (Jun 20, 2005)

I am thinking about building a spec house this year. I figure why not? I have money in the bank not getting much interest and in my area as long as houses are priced right, they sell no proablem. I already made a offer on a lot last month, but did not get it. However, i learned alot during that experience. I have enough money to pay cash for the lot, blue prints and all permits. The lots i am looking at would take a 1600-1800 sq ft house. Doing most of the work myself i figure i can build the house for 80-90k. Its hard to figure out an exact # without plans. The lot will proably run 16-20k which is 20% or more of my estimated construction cost. House would sell for a estimated 225k.

I guess my question is, how hard is it going to be to get a construction loan for this. Since i am young i am still working on building my credit score up as much as i can. Do you think it would be easier to get a loan under the business or personally to build the house? What do you guys think. 

Matt


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## Grumpy (Oct 8, 2003)

Matt this advice somes only from my experience of buying my condo and reading alot about what you are asking because it is a goal I too have. 

First off I have read that banks won't loan money on vacant land unless you are putting down 50%. I would suggest putting down the minimum ammount and then begin the blue print process. 

Once you have a blue print and have made your payments on time on the land you can go to the same bank to seek a construction loan. Use your left over money as the down payment for the construction loan. 

Do you have any other collaterol like a house or condo? Can you float two mortgages while building this house? Will you have enough $$$ left over for living expenses while you work full time building this house? Will you keep your full time job and work on this house part time?

I don't really care aboutt he answers to these questions. I am just asking them so you can think about it.


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## ruskent (Jun 20, 2005)

Gumpy- I guess i should talk to a bank. The lots i am looking at run 15-20k. I planned on paying cash on it. I guess i'll talk to the bank and see what they tell me is the best thing to do, to make the most out of my money.

I own no other property. I will still do other jobs as i build this house. I will do many things on this house myself, but when the masons, siders, electricans, hvac, drywaller, etc are there doing there thing, i do not have to be there the entire time, so i will have pleanty of time to keep the money rolling in.


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## Cole (Aug 27, 2004)

Hard money lender?


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## King of Crown (Oct 12, 2005)

just depends on where you live. there is always money to be lent, from bank, or otherwise. make some new friends.


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## Cole (Aug 27, 2004)

King of Crown said:


> just depends on where you live.


What?


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## King of Crown (Oct 12, 2005)

i edited my message.


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## ruskent (Jun 20, 2005)

My only fear is buying the lot, and then finding out no one will loan me money and have to wait a year to build up enough down payment to get the construction loan.


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## King of Crown (Oct 12, 2005)

where are you at?
location, location, location


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## ruskent (Jun 20, 2005)

I live in north jersey. The land i am looking at is in Pike County PA.


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## mdshunk (Mar 13, 2005)

Three typical methods:
1) partners
2) family
3) 2nd mtg on your existing house

I used a combination of #1 and #3 for my first few. The rule of thumb, for me, has been build two, get the third one free. In other words, you only need financing for your first two specs or rehabs, and you'll be golden after that as long as you don't get silly.


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## King of Crown (Oct 12, 2005)

i concur


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## Peladu (Jan 8, 2006)

ruskent said:


> My only fear is buying the lot, and then finding out no one will loan me money and have to wait a year to build up enough down payment to get the construction loan.


Well taking this and tying it in to what you said earlier.

You will still make more on the land than you will just keeping the money in the bank for the same amount of time.

The only difference being the liquidity factor.


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## framer long (Oct 27, 2005)

ruskent said:


> I live in north jersey. The land i am looking at is in Pike County PA.


Where in pike co are you finding lots for 15k ????????
havent seen prices like that since the late 80s


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## Mike Finley (Apr 28, 2004)

ruskent said:


> I guess my question is, how hard is it going to be to get a construction loan for this. Since i am young i am still working on building my credit score up as much as i can. Do you think it would be easier to get a loan under the business or personally to build the house? What do you guys think.
> Matt


In my opinion the construction loan is going to be the easiest to get. It's attached to something(the house you are building) and you can put up the land as colateral I believe. I'm not saying getting it will be easy, but in your situation it seems the most likely out of the three options you presented. I can't see you getting a loan through your business or a personal loan that would cover the costs, nor really should you want to. The construction loan is not just going to be a blank check attached to a big old checking account, the bank is going to be all over you and make you do things the right way, or at least their way to safe gaurd their investment. That won't be a bad thing for you.


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## mdshunk (Mar 13, 2005)

Mike Finley said:


> In my opinion the construction loan is going to be the easiest to get.


Maybe, but guys building specs want to act as their own GC most times. They also often want to do more than the normal share of work. This doesn't normally make a construction loan possible.


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## ruskent (Jun 20, 2005)

In the morning i am going to go down to my bank and talk to them about the construction loan process just so i know what i am dealing with. I'll let you guys know what i find out. I am sure one way or another i will find a bank somewhere that will loan me the funds. Worse comes to worse, i'll have to come up with 20% of the construction cost if they won't let me use just the land as colateral. That will only hold me up a couple of months.

Theres just something about working on new construction i like. I used to work for a guy who built alot of houses. It was always nice being able to work as long as you want into the night without having to deal with a homeowner coming home from work, or kids coming home from school. I mean, once i get going with some trim or tile or anything time flies.

Matt


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## locofoco (Dec 15, 2005)

MD- Tell us a little more about your spec houses. How much of the work did you do yourself? Were you the licensed GC? Did you sell them yourself? Any guidance would be appreciated.


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## chrisherk (Dec 11, 2005)

I got a loan for my first house. It was easy because i was employed and i could cover the payments. I found you cant build a house working nights and weekends, but i was doing everything myself. So i quit my job. Itwas still time consuming,but finished, and made a ton of money. I went to the bank again for the same house on another lot, told them I made so much money that I am now a homebuilder. They said I need 2 years of self employment tax returns, which i cant provide. So now I cant get a loan, even though I have the cash to build it. I dont want to use up my cash though. maybe Ill try one of those no doc loans.


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## Mike Finley (Apr 28, 2004)

chrisherk said:


> I got a loan for my first house. It was easy because i was employed and i could cover the payments. I found you cant build a house working nights and weekends, but i was doing everything myself. So i quit my job. Itwas still time consuming,but finished, and made a ton of money. I went to the bank again for the same house on another lot, told them I made so much money that I am now a homebuilder. They said I need 2 years of self employment tax returns, which i cant provide. So now I cant get a loan, even though I have the cash to build it. I dont want to use up my cash though. maybe Ill try one of those no doc loans.


That should be expected right Chris? Your risk went through the roof as soon as you were building anything but something you were going to live in. Banks know people will fight tooth and nail for thier personal crib.


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