Getting a loan to build a home...

I've had some problems lately with an idea I posted about a couple few months ago.

Anyhow, I would like to build my own house. I need to hire out the basement foundation, drilling the well, and installing a septic system. I would like to be doing all the work I can possibly do to save a dime. I would want to do all of the digging for the basement, septic tank, and lateral line assuming it is required. I would either hire a fella who runs a backhoe or try to rent one myself. I have access to a skidloader. It's an older one but with patience I could get the basement dug.

So I can't pull home builder's loan because of my credit score (none at the time). This is understandable. I'm driven by a hard work ethic, and am capable of working 50 to 55 hour weeks to pull some extra income. The issue I have is trying to get a loan to build. I'd rather not get anything associated with home building or mortgage because of the fact that I would have to be paying insurance, get inspections at different stages, and have most if not all work done by a contractor.

Unfortunately since I am starting on a bare lot with no utility hookup options, I would need to have the well and septic system. This is a large upfront cost. I am figuring around 15,000 for it. On top of that a good 10-15k for the foundation. The rest I believe is sensible to pay as I go. (open for corrections, logical arguments, or suggestions here) But in essence, I think if I had 40 to 50k in a loan to work with I could make this all happen with my work ethic and perseverance.

I feel that one grandparent has the funds, but she is getting older and wanting to retire soon. I feel that she would think that I am wanting to get a loan from her to not have to pay it all off through the years. Or she would use the excuse that she is retiring soon and depending on it. (even though this lacks logic, as being paid back monthly would be fine since she is not buying one large item or moving away) I believe she has net worth from 300-700k.

Another option is the landowner. But all I have is my word to offer to them. The landowner is also family, and I don't want any problems to arise.

I have not walked into a bank and asked for a personal loan, but I believe I would get humiliated and told no for multiple reasons and this can be understood because of my generation.

Do banks, or maybe credit unions still offer personal loans like back in the day when a handshake was gold and people got loans by their word or reputation around town? If banks or credit unions offer loans without much if any collateral is there limit pretty low?

 

Sit down with a banker and ask what it will take to get approved. That's the only way you'll know for sure. Tell him your plans to DIY. Construction loan requirements can be very demanding, banks may (probably will) have issues with someone with no previous experience using their money to build their first house. Mortgage approval has gotten much more difficult than it was before the melt down.

You won't be able to get a personal loan without declaring your purpose and providing collateral, especially for the amount you'll need.

 

Thanks for the reply. And yeah I suppose that seems fair and maybe or maybe not the only option for loans?

I've had a credit card jointly under my father. The card is mine, on my own account, with my own name. I think somehow if I don't pay it it charges him. I set this up last year. Will I earn a credit score with that? I used it quite a bit, but lately I've been using my debit card instead since I have no cashback bonus for this season of events.

Also, I was talking with one banker and they said to get a credit score I have to leave debt on my cc and just pay the minimum more or less. I think that is BS if true, why would showing you CAN"T pay off a card be good...? Especially if it's under $1,000 of total cc debt?

 

We had a great thread at 4.0 about this that NoSoup ran. I'll see if I can dig it up tomorrow. NoSoup checks in from time to time so maybe he'll see this.

Basically, I think that it's more important to have a high amount of credit and use it responsibly. Not paying it off every month is going to harm your credit rather than hurt it. However, only have $1,000 tells lenders that others may consider you a bad credit risk, especially when you're asking to borrow lots more than that.

I'll be honest - even if I were related to you, I'd never loan you this money. It seems like you're ignorant of a few critical facts. If you are building a home, you are going to have to have it inspected for the purpose of building permits, regardless, for instance. You also need insurance for any lender in case a fire starts in an unfinished house and burns it to the ground, etc. Do you have the experience in pouring foundations, doing plumbing or framework, etc? How much?

I don't disbelieve your work ethic, but I think that your energy is misplaced at the moment. It appears that you want to build a house on land you do not own (as I infer) with equipment that may not be suitable for the job and in a manner that may or may not be proper for the structure you want to build. I think that your time is best spent in the near term working to build a nest egg and credit so that you become a more attractive risk. If you have, say, $5,000 of your own that you can put down and a decent credit score and have some experience doing this sort of work, a banker will probably look much more favorably on you than now.

 

I've got about 9k saved up with an additional 3 in stocks.

I understand that permits are pulled and inspections are needed regardless of the scenario. However, with the bank and a home building loan, money is given in stages and all work done has to be by a licensed contractor.

I know many trades, and will not go to college to get a paper which will certify that I'm not a delinquent guy who thinks tinkering is construction.

I figured that I would not have to pay expensive insurance or builder insurance if the loan is unsecured. I know higher interest rates would apply, but the monthly insurance costs seemed astronomical from a bank I talked to.

Being told I can not do something only pushes me more. I'm just looking for other options than the standard building loan from a bank.

 

AtypicNic, I have no doubt that you're a hard worker and driven. I simply doubt that you have the experience necessary to take on this project by yourself. You are asking other people to invest in the idea that you know enough to complete this project in a safe, timely and acceptable manner.

You may have noticed in my first post that I did not mention school. At all. I asked if you have experience. As in "how many foundations have you poured?" Or "are you a licensed plumber?" While these trades may seem simple, I've been around long enough to know that they definitely are not. Using the wrong material can cause expensive repairs. Even using the right material but with the wrong application can be budget-breaking. Not to mention that you're required to adhere to the building code and I'm frankly concerned that you may not be familiar enough with it to build a house on your own.

Perhaps you already have had plans drawn up for this house. If you have not, you should spend the money to do so and have it stamped by an architect. That will lend credibility to your project, and that is something that you desperately need if you're going to make this a reality. Knowing that it will have X square footage, have PEX piping (assuming that you're not trying to build in NV) for the plumbing, will have copper wiring, a single membrane roof, etc., etc., will make whoever you are trying to convince to make this investment much more comfortable.

One thing that you have not mentioned is who will be helping you. Most of the work that you're going to have to do will require a second set of hands. If you're going to act as your own general contractor and use subcontractors, you should make certain that you are using your own contract, not theirs. In some states (NY, CO, IL, CA off the top of my head), you can run into very large unexpected liabilities that a subcontractor would try to shove onto you in their own contract.

That brings up insurance, which you mentioned. There is a reason that the numbers you heard were expensive - because there is a lot of risk. Buildings under construction fall down, burn, attract undesirables (human and otherwise) and have water damage at a much higher rate than buildings that are completed. I'm not saying that you have to buy insurance, but I am saying that you need to understand the risk that you're taking on by not doing so. If you choose not to buy it, you have probably ruled out a bank loan for yourself.

Finally, I'm not saying that this is a bad idea. I'm simply saying that it is a bad idea RIGHT NOW. You don't seem to be nearly as ready as you think you are, and I think that you can afford to wait.

Edited to add: as promised, here is the old thread from 4.0 that NoSoup created and maintained.

NoSoup's Guide to Obtaining and Maintaining Excellent Credit - Tilted Forum Project Discussion Community

There is a ton of good information on credit and credit scores that you can use to build yours.

 

Borla - I understand where you come from with your words. The previous thread with credit/loan ideas was spitballing. I wasn't providing just rational options, but all that I could think of. I did not mean to take anything out of context with school. I also did not demonstrate that I assumed you would use your past as foundation with the idea of being told you can't makes you want it more. It's an adage and used frequently. Sometimes with ignorance. No I do not apply it towards running out in the street, jumping in front of a train, or any stupid shit in general. I do however know I am more capable of many jobs than a high percentage of this world's population, arrogant or not. Not JUST because I have participated in them through my lifetime, but because I have the ability to teach myself and learn from experts in the trades.

the_jazz - I would not be performing such a big undertaking. The utilities and foundation would be contracted out, aside from digging. Anyone can dig, rather it be a shovel and 5 gallon bucket, a skidloader, a backhoe, or your bare hand. Now do not blow this out of proportion as there are logical options and idiotic ones. The idea in general is to DIY and save funds on the grunt work. I would have two contractors helping. More so, supervising. Framing would be done in portions, beams would be placed with multiple people, as would trusses and strapping. The house will be simple and small. Wiring would be done to code by myself and an electrician. Plumping would be minimal and most likely done myself. Yes pex (with tools of a friend), yes exhaust vents on all drains, yes nail plates on all studs with pipes running through the walls, no-no cutting holes in beams to run lines (lol), no copper (if any) in concrete, etc.

The orgin of this post was talking about loan options and just to get the thoughts off my mind. I understand the deviation and welcome it. Personally I feel that the process of building a house CAN be simplified with the right connections (friends who are in the trades, family who can help, and patience) I understand the reasoning for code, why it is needed, and why permits exist with inspection. The house would not be a two story place. Insurance would be bought as/if needed. A concrete foundation will not burn down. It may crack, sure. But insurance on objects that are not easily destroyed doesn't seem right. Once the foundation is set and framing begins, then it would make sense. I have yet to know if that idea is possible, or if it needs bought before starting. Also, before contracting work out, I would need to know if the workers are going to be covered or if I need insurance to cover them.

 

I totally get where you are coming from. But, I worry that unless you are trying to build in the middle of nowhere in the desert, you will have to get too many approvals and there are plenty of building codes and other regulations that you will run across.

This isn't to say that it can't be done. I know some people who hired a guy that built houses and acted in partnership as general contractors. I have flipped through a few books on the subject, and here is a good website for the process overview. How to Build a House (with Pictures) - wikiHow

Money is always going to be an issue. Getting a loan for the purchase of land doesn't seem too far fetched, even from relatives. You will have to pay property taxes every year, so look into that before you buy. Also, utilities can cost lots of money to hook up if you don't want to be off-the-grid in some locations. Water access can also be an issue and cities might deem places uninhabitable without a water supply.

If I were going to do something like this today, I would seriously look into the container house movement, and start with that. Not that my city would let me built it where I live though. Container housingShipping Container Modification Australia I have done most of the work that goes into building a house either on my parents, mine, or other friend's home, so I am confident that I could do the work myself or know when to hire it out to a professional. And I found out that I also don't need 1600 sq feet. 600 sq feet was enough if I had a big garage/workshop area which is easy to build out of shipping containers.

 

Prior to checking out responses on this thread, I have ordered 'Building Codes Illustrated: A Guide to Understanding the 2012 IBC' then a book on DIY housebuilding, and then a book on electrical, plumbing, and mechanical building codes. The first book should cover the last one, but the last one offers some great illustrations and tips on the sides.

One family member has offered to possibly loan 10-20k. Not for a while, but when I wanna start it'd probably be around then. Another member offered a loan with interest on it. Didn't say how much, but possibly 20k to maybe even 40k.

Between the two I would hope to be very far along the build, including my stash I obtain while planning. The only utilities that would be through the city/county are getting a electric line ran to a post, and possibly a gas line. There is gas line and electric lines running on the road past me to a housing area. I believe the phone company runs a new phone line for free under contract with their service. The water, sewer, and trash would all be with myself through a well, septic tank/lateral line, and burning trash.

There is a well near the lot of land I plan on getting. There are also water wells further out in that housing area I talked about down the road. The only worry I have is if a well needs to be x amount of feet from another one. Especially if it's a deep water/irrigation well nearby. It probably has a little thicker of pipe...but it's not irrigation as in pivots...but drippers for a bunch of trees. I figure I could have my well on the opposite end of the lot and be okay. Obviously water is near because there are so many wells further out. ~half a mile if that.

I'd like to just get the foundation in and work up from that. The idea came to mind to build a metal shop building, enclose it, then make half of it living area. People do this more and more often. But there would be no basement...and metal is pricey these days.

 

What? Are books that boring that people stop posting?

 

I am sure well regulations differ in location. Possibly those housing developments have agreements. I know ag/irrigation wells are now getting denied because of the water table and drought and shit. I'm anxious to look through these books when they get here. I was tight and opted for free dinosaur shipping rather than standard vehicle.

 

Atyp,

The materials you can get now are so inferior to the stuff you can find in a well-preserved old house and the labor cost of paying for anyone else to do any of it make new construction a very risky business for an experienced contractor. You should really look for a cool old farmhouse to refit. I have done remodeling for 15 years and I can't match the brilliant work that is just rotting all over the countryside. If you spend some time researching, you will find plenty of ways to add value, you will probably be able to find good water and septic, you will learn a lot by seeing what past craftsmen and women did before you, and you can rescue a doddering old beauty from certain decrepitude. You may also find something reeeally cheap, too. There are many deals out there from owners just looking to unload. Especially places that need a lot of work. Look for a good foundation and roof (structure at least).

Woodeye

 

I want to echo this as well. If you do get money from relatives, draw up a (simple) contract that explains how much, when you will pay it back and interest terms (including penalties if you don't pay it back). Treat it as business - those family members are doing you a favour and putting it in writing means you don't screw them in the process.

My wife and I got a "loan" from her parents when we were starting out - knowing full well it was a gift (basically pre-paying part of her inheritance), but we still signed a document stating that this had occurred so everything is above board and there is a paper trail - more for the relationship between my wife and her brother.

 

Thanks for the words of wisdom guys.

 

Here's an update. I'm really really really wanting to get my decision made this weekend. Before actually. Need to let the tenants know if they can stay or to get out by end of May.

Here is a spreadsheet I have made, left is new build...right is what I could have and what I would upgrade, fix, or replace. Does it seem legit?
Welcome to Google Docs

I was also considering, yes, hear me out here...building either a large version of a tumbleweed home, or an all metal building, imagining it would be able to sustain a tornado better than a typical lumber, wood sided, shingle roof. I probably would poor a slab instead of basement if I went with that, and probably make it 14x32 and expand later. Thoughts?

 

Two tall shipping containers side by side would be 16x40 (minus wall thickness). Just cut through the interior metal wall in a few places. You could really anchor them into the ground, and put siding on the outside or whatever too.

You wouldn't even need an entire concrete pad poured. You just can have an exterior footprint poured like a curb to save some money.

 

I'm not sure how that would pass code to get an Occupancy Permit though?