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View Full Version : Construction loans...educate me please.


jkski
02-20-2012, 11:06 AM
I am getting closer to building my new house and need some insight into construction loans so who better to ask than you guys! So, here are a few questions/scenarios:

1) I wanted to act as my own GC however, the banks are pretty stringent in terms of their guidelines for this and are requiring that the GC be in the business of building homes and have built at least 3 homes/year, so I am out but still want to be able to do some of the work myself. Specifically, I have a friend that does excavating and concrete and I can get a great deal if I work directly with him for the foundation dig, basement and garage pour but how would I go about paying him through the loan? Do all payments have to flow thru the GC?
2) I plan to do all of my own flooring and painting, which, I may choose to utilize the money from the construction loan, but again, would I be able to simply draw from the loan for this or does it have to flow thru the GC.

Any advice is always appreciated.
Thanks in advance.

SkiDog
02-20-2012, 11:22 AM
I am getting closer to building my new house and need some insight into construction loans so who better to ask than you guys! So, here are a few questions/scenarios:

1) I wanted to act as my own GC however, the banks are pretty stringent in terms of their guidelines for this and are requiring that the GC be in the business of building homes and have built at least 3 homes/year, so I am out but still want to be able to do some of the work myself. Specifically, I have a friend that does excavating and concrete and I can get a great deal if I work directly with him for the foundation dig, basement and garage pour but how would I go about paying him through the loan? Do all payments have to flow thru the GC?
2) I plan to do all of my own flooring and painting, which, I may choose to utilize the money from the construction loan, but again, would I be able to simply draw from the loan for this or does it have to flow thru the GC.

Any advice is always appreciated.
Thanks in advance.

I am a general contractor. I have had clients that wanted to to the exact same thing you do. So here is MY advice. Get bids from REPUTABLE contractors and make sure they price it apples to apples. That way, you're getting the fairest deal. i don't suggest you take the lowest deal either. You get what you pay for. Remember this, there are 3 things to look for. Price, quality, & speed. However you can only have 2 choices from that list!
As for wanting to do things yourself, remember, you are the one paying the interest on the loan, if you think YOU can paint the entire house faster & better than a professional, then by all means go for it! Same for flooring. IMO, the last 10% of the job is 90% of the work. the finish part of the house is THE MOST IMPORTANT!!!!!!!!!!!!!!!!!!!!!!!!! Let the pro's do it and get moved in that much faster. there's PLENTY you can do to help save money on your project. One thing is daily or weekly jobsite cleanup! A jobsite can NEVER be too clean. Clean sites are SAFE sites too. You also might could help out on the finish trim, such as installing door hardware, towel bars, and such. Just don't take on a trade thats gonna take YOU a lot longer to do than a professional can do it. Its YOUR money, and TIME is MONEY! Hope this helps. Good luck!

jkski
02-20-2012, 11:33 AM
This helps a ton and I apprecaite the advice.
So, as a GC yourself, how would you price things if you knew someone wanted to do some of the items on their own vs. allowing you to handle them?

I ask this in that I met with a potential builder over the weekend and have 3 more I am interviewing this week however, I am somewhat reluctant to share with them that I want to do some of the work myself, at this point. My thought process being, I would rather have them bid the entire job and line item everything, then I can go through and pick-off the stuff I plan to handle and take this right off the bottom line. I realize that they need to make money but I am concerned that if I am "honest" upfront, my pricing for those items that they will be doing is going to increase over what it would have been had they thought they were doing it all.
Thoughts???

Sodar
02-20-2012, 12:06 PM
Option #1. Do as you stated above. Have them bid the whole job. Everything. Get a schedule of values (price for each line item/trade/scope of work). When you write the contract, put this schedule of values into the contract. When the time comes and you decide you want to pull painting from the bid, the deduct is already a known value.

Or.

Have them bid the whole job, but have them include an alternate deduct to eliminate certain scopes of work. Interior painting, finishes, etc. Write those alternates into the contract. This is probably the most up front and "cleanest" way to do it. Every GC plugs contingency into their line items for potential overruns and added profit. If you go with option one, you may be pulling hidden contingency and profit from the GC... therefore making him an unhappy guy.

73blue
02-20-2012, 12:09 PM
I think you can be upfront with them and still get a fair quote. Just tell them you would like a complete quote, and that you may decide to handle some things yourself. You would like the completed price to compare each thing to your own costs. But here's the thing about that. A large part of what the GC gets paid for is coordinating subs. He needs to know who will be doing what and when. If your friend is giving you a deal on the foundation, but ends up prioritizing other, higher-paying jobs over yours, that could push the time schedule for the whole project, costing the GC time and money. If the GC moves his subs on to another job, it could further delay your project. I'm not necessarily trying to discourage you from enlisting your friend to save money, but look at it from the GC's perspective. HE has the potential of a screwed-up timeline, employees and subs sitting idle, a project thats exceeding budget, an upset client (you), and no recourse because he has no control over the sub(your friend).

In my mind, and my experience, he HAS to build in extra cost if you go that route simply because of the unknowns.

jkski
02-20-2012, 12:46 PM
All great points, I appreciate the feedback.
My cost savings in terms of foundation dig and concrete boil down to literally materials cost only. Truthfully, all I really need the GC for is to satisfy the loan, pull the permits, foundation and framing as I have subs for everything else.

I understand that the GC has the job of choregraphing all of the subs, so anything I choose to do has to fall in-line and get done on his timeline, which I am certain I can accomplish.

Again, I appreciate the feedback so please keep it coming. In the end I may find that the cost of having the GC do it all is far less than what my time is worth.

pmkkdx
02-20-2012, 01:17 PM
just be sure to get your loan all worked out before you start construction ... I made the mistake of doing a large add-on to our previous property where I planned on doing a large portion of the foundation & framing/dry-in myself, then getting a GC to do all the finish out. I made it up to where I was finished with my part of constuction before going to get the loan to compensate for just materials that I had out of pocket & the GC portion ... lending institution would not finance what I already had put into it (ouch!)... had to take a back door approach to re-coup my outlay of cash.

SkiDog
02-20-2012, 01:51 PM
All great points, I appreciate the feedback.
My cost savings in terms of foundation dig and concrete boil down to literally materials cost only. Truthfully, all I really need the GC for is to satisfy the loan, pull the permits, foundation and framing as I have subs for everything else.

I understand that the GC has the job of choregraphing all of the subs, so anything I choose to do has to fall in-line and get done on his timeline, which I am certain I can accomplish.

Again, I appreciate the feedback so please keep it coming. In the end I may find that the cost of having the GC do it all is far less than what my time is worth.



trust me, THAT will happen!
Another thing to do is, contract the GC to do nothing BUT pull permits, Frame, and foundation work. I'm sure he'll be glad to give you a price on that. That also keeps his warranty issues to a minimum.

jkski
02-20-2012, 02:14 PM
Yeah, it is always Dream World vs. Reality World in that we all believe that we have more time than we think until you get a project like this started!!!

I just spoke with one of the lending institutions and had one of my questions answered, albeit not what I really wanted to hear. I was inquiring about how the draw of fund works and who they go to etc. and it was explained to me that they go directly from lender to GC, which certainly makes sense. I was hoping to have some control over this aspect so that I could pay directly for materials of any portion of the project I choose to do myself, but as they stated, everything must flow thru the GC. So, I would end up letting the GC buy the materials and then I do the install or I can just buy them myself and avoid putting them into the loan altogether.

I was quoted a rate of 7.75% for the construction phase of the project with about $10k in closing costs when the loan is switched over to a 30yr fixed, is it just me or does that seem pretty steep!

bobx1
02-20-2012, 02:30 PM
My buddy decided to do the same thing (build most of his own home and have a GC oversee the project for permitting/licensing/finance purposes).

He and his very capable father in law ordered the lumber for framing the foundation. Framed the foundation then ordered the concrete trucks to show up on Saturday. In the meantime, he ordered the rest of the framing lumber. Concrete trucks show up and pour the slab. A few days later the framing lumber shows up and they dump it at the job site. Bulding inspector shows up and his slab is a few inches into a servitude. Job site is shut down for 2 months waiting for waivers from the city so he could move forward.

That was the FIRST thing that happened. Add all the other stuff up (including the cost of several marriage counseling sessions) and he finally admitted that it was the biggest mistake he ever made.

I am all for doing stuff yourself but........

SkiDog
02-20-2012, 02:41 PM
My buddy decided to do the same thing (build most of his own home and have a GC oversee the project for permitting/licensing/finance purposes).

He and his very capable father in law ordered the lumber for framing the foundation. Framed the foundation then ordered the concrete trucks to show up on Saturday. In the meantime, he ordered the rest of the framing lumber. Concrete trucks show up and pour the slab. A few days later the framing lumber shows up and they dump it at the job site. Bulding inspector shows up and his slab is a few inches into a servitude. Job site is shut down for 2 months waiting for waivers from the city so he could move forward.

That was the FIRST thing that happened. Add all the other stuff up (including the cost of several marriage counseling sessions) and he finally admitted that it was the biggest mistake he ever made.

I am all for doing stuff yourself but........

I don't mean to sound like a dumba$$, but what exactly is a 'servitude'? do you mean the slab was encroaching into the county required building setbacks?

bobx1
02-20-2012, 02:51 PM
I don't mean to sound like a dumba$$, but what exactly is a 'servitude'? do you mean the slab was encroaching into the county required building setbacks?

I may have not used the term properly. I use the term to mean easement/right-of-way/servitude.

In his specific case, it was too close to the sidewalk.

SkiDog
02-20-2012, 03:18 PM
I may have not used the term properly. I use the term to mean easement/right-of-way/servitude.

In his specific case, it was too close to the sidewalk.

that means he put his slab into the setbacks and had to apply to the county for a variance. This happens all the time. I am on the county variance board for my county. been doing it for 8 years now. Some people believe that they can get away with anything. Oh its my land, I'll build where I want to then have to come before us begging for a variance so they can get proper title insurance. I've had builders do the same thing, KNOWING damn well that they were in the wrong.:mad:

73blue
02-20-2012, 03:46 PM
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trust me, THAT will happen!
Another thing to do is, contract the GC to do nothing BUT pull permits, Frame, and foundation work. I'm sure he'll be glad to give you a price on that. That also keeps his warranty issues to a minimum.

You may find one to do that, but he is still somewhat liable for everything because the permits are pulled under his license, and so will still need to oversee each aspect.

SkiDog
02-20-2012, 04:04 PM
You may find one to do that, but he is still somewhat liable for everything because the permits are pulled under his license, and so will still need to oversee each aspect.

Yes, you are 100% right about that!

jkski
02-20-2012, 04:12 PM
Here is what I would like to do:
1) I can have the foundation dug for the cost of an operator.
2) I have a plumber that I would like to have do all of that work and simply pay him cash.
3) All concrete work will be done for materials cost only.
4) All flooring (tile, carpet and wood) I will do.
5) All painting/staining, including trim, I will do.
6) Putting on door handles installing faucets and toilets, I will do.
7) All site clean-up, I will do.
8) All final grading, I will do.

I have spent a long time building-up the "Favor Bank" with this date in mind and I do have reliable people in place to carry out the work in a timely fashion.

So, given those parameters, and knowing that my timeline is to be in by Thanksgiving, do you think a GC would go along with it?

SkiDog
02-20-2012, 04:29 PM
Here is what I would like to do:
1) I can have the foundation dug for the cost of an operator.
2) I have a plumber that I would like to have do all of that work and simply pay him cash.
3) All concrete work will be done for materials cost only.
4) All flooring (tile, carpet and wood) I will do.
5) All painting/staining, including trim, I will do.
6) Putting on door handles installing faucets and toilets, I will do.
7) All site clean-up, I will do.
8) All final grading, I will do.

I have spent a long time building-up the "Favor Bank" with this date in mind and I do have reliable people in place to carry out the work in a timely fashion.

So, given those parameters, and knowing that my timeline is to be in by Thanksgiving, do you think a GC would go along with it?

IF you want to do ALL those things on this house, you MUST be retired, or either have a buttload of vacation built up!

76S&S
02-20-2012, 04:42 PM
I agree with SkiDog, that is a tight schedule for you to be doing that much of the work.

On Edit: I plan on building our lake house. I will probably do everything except HVAC. But, I won't have to be in a hurry as I will have a place to stay on the next lot over. I literally PLAN for this build to take years and not months..........I built my current house that we've been in for 19 years, but my schedule had much more free time back then.

captain planet
02-20-2012, 04:51 PM
Here is what I would like to do:
1) I can have the foundation dug for the cost of an operator.
2) I have a plumber that I would like to have do all of that work and simply pay him cash.
3) All concrete work will be done for materials cost only.
4) All flooring (tile, carpet and wood) I will do.
5) All painting/staining, including trim, I will do.
6) Putting on door handles installing faucets and toilets, I will do.
7) All site clean-up, I will do.
8) All final grading, I will do.

I have spent a long time building-up the "Favor Bank" with this date in mind and I do have reliable people in place to carry out the work in a timely fashion.

So, given those parameters, and knowing that my timeline is to be in by Thanksgiving, do you think a GC would go along with it?

Well jk, since you obviously wont be needing your 40th this summer, I'll gladly take it off your hands this summer. :rolleyes:

Mag_Red
02-20-2012, 06:06 PM
Did the exact thing you're thinking of doing 4 years ago.............here's the thread http://www.mastercraft.com/teamtalk/showthread.php?t=15696 Not on here much so I'll PM you my number if you want to talk

snork
02-20-2012, 06:11 PM
The things listed jk wants to do personally or privately contract out is meniscus to the total project at hand.
If I was the GC I would definitely want to be comfortable with all sub involved

If you can't find a GC to play you could always sell the 40th to offset costs :D

2RLAKE
02-20-2012, 06:27 PM
Did the exact thing you're thinking of doing 4 years ago.............here's the thread http://www.mastercraft.com/teamtalk/showthread.php?t=15696 Not on here much so I'll PM you my number if you want to talk

you are back ... you did great showing the details of your house and what you went through ... really enjoyed your pictures

jk ... it takes 5x more time than anticipated ... you will have to be prepared for that .. especially when it slows down other aspects of the project. I ended up taking over for my GC because he was an idiot, but i knew that upfront and had a very good contract that protected me. I probably framed 20% of the house and did part of the finish work. Also, in my contract, i had allowances for certain things (kitchen cabinets, plumbing fixtures, porch ceiling, etc) and was able to deduct those out of the money i paid the GC. The bank was terrific ... i had five draws set up and a provision to pay myself for the allowances

dont bite off more than you can chew ... dont mean to be disrespectful and maybe you have the experience, but sounds like you are taking on a lot .. again you might have those skills and resources

Fast50dad
02-20-2012, 06:36 PM
We built last year, just hit 1 year this month. Had our contractor do it all. Yes we may have paid for it, but closed two weeks early, didn't take a day of vacation, still married, and we love the home. A lot of good advice from TT, good luck!

SkiDog
02-20-2012, 07:36 PM
Well jk, since you obviously wont be needing your 40th this summer, I'll gladly take it off your hands this summer. :rolleyes:

Oh hell no! Remember what you said about boats WITH towers?!?!?!?!?!?! let him give it to somebody thats gonna appreciate it!;)

2RLAKE
02-20-2012, 10:07 PM
Oh hell no! Remember what you said about boats WITH towers?!?!?!?!?!?! let him give it to somebody thats gonna appreciate it!;)

i would appreciate it ... where do i come to pick it up and give it a good use ... you have to keep that oil moving around in the engine ...

onewheat
02-20-2012, 10:28 PM
I was quoted a rate of 7.75% for the construction phase of the project with about $10k in closing costs when the loan is switched over to a 30yr fixed, is it just me or does that seem pretty steep!

I got a 5.25% (in Sept) and it swaps to a perm loan for ~ $2000 (if I remember correctly off the top of my head). Yours sounds a bit steep.

jkski
02-21-2012, 07:50 AM
Thanks guys.
No, I am not retired but do have about 3 months of vacation sitting idle and I take no offense to any suggestions stated here as I am just soaking it all in and wouldn't ask if I did not want to hear it.

That being said, I will have to take a long look at the figures the builders come back with to see IF it is worth me doing any of the work. As many of you pointed out, issues arise in terms of warranty and quality of work when you begin going outside the subs that the GC normally works with.

As for the 40th, well, everything is always for sale in my world so bring on a solid offer and we can talk. Otherwise, anytime you are in the area I will be happy to take you out for a pull, the least I can do for all of the advice provided here.

SkiDog
02-21-2012, 08:30 AM
Thanks guys.
No, I am not retired but do have about 3 months of vacation sitting idle and I take no offense to any suggestions stated here as I am just soaking it all in and wouldn't ask if I did not want to hear it.

That being said, I will have to take a long look at the figures the builders come back with to see IF it is worth me doing any of the work. As many of you pointed out, issues arise in terms of warranty and quality of work when you begin going outside the subs that the GC normally works with.

As for the 40th, well, everything is always for sale in my world so bring on a solid offer and we can talk. Otherwise, anytime you are in the area I will be happy to take you out for a pull, the least I can do for all of the advice provided here.

Yea, I may have come across a bit harsh, and I CERTAINLY didn't mean to. If I did, I apologize! I just hate to see somebody bite off more than they can chew when it comes to home construction. You'll see, its not near as easy as it appears. A lot can go wrong, as well as you just might have nothing go wrong. But for somebody doing this for the very first time, I'll just say this, Be careful! Do your homework, and don't be afraid to ask someone for help if you need it! Do it right the first time, cause changes and do overs are expensive. Good luck pal!:)

jkski
02-21-2012, 08:48 AM
Yea, I may have come across a bit harsh, and I CERTAINLY didn't mean to. If I did, I apologize! I just hate to see somebody bite off more than they can chew when it comes to home construction. You'll see, its not near as easy as it appears. A lot can go wrong, as well as you just might have nothing go wrong. But for somebody doing this for the very first time, I'll just say this, Be careful! Do your homework, and don't be afraid to ask someone for help if you need it! Do it right the first time, cause changes and do overs are expensive. Good luck pal!:)

I did not take it harsh, no worries and besides, it's the truth and that is what I asked for. Too many people get their "feelings" hurt over answers they ask to questions when the reply is not what they "want" to hear....I am not one of those people. Don't ask the question if you can't handle the answer!

So, SkiDog, I've got a deal for you....how about if you come to Ohio and build my house in exchange for skiing every morning on a private lake behind the 40th. Just to sweet'n the deal a bit, I will provide accomodations at the building site and all the beer you can drink!!!
Hard to pass up I know so I will give you some time to think about it.

bobx1
02-21-2012, 09:57 AM
Here is what I would like to do:
.............
4) All flooring (tile, carpet and wood) I will do.
5) All painting/staining, including trim, I will do.
6) Putting on door handles installing faucets and toilets, I will do.
7) All site clean-up, I will do.
8) All final grading, I will do.
...........


Maybe a GC can chime in but are'nt these jobs paying in the neighborhood of $15-$20 per hour (depending on location)?

You are not doing the expensive stuff (HVAC, Plumbing, Electrical) so unless you just have a lot of time on your hands and want to do it on your own then I am not sure how the math is going to add up to much of a savings.

SkiDog
02-21-2012, 10:01 AM
I did not take it harsh, no worries and besides, it's the truth and that is what I asked for. Too many people get their "feelings" hurt over answers they ask to questions when the reply is not what they "want" to hear....I am not one of those people. Don't ask the question if you can't handle the answer!

So, SkiDog, I've got a deal for you....how about if you come to Ohio and build my house in exchange for skiing every morning on a private lake behind the 40th. Just to sweet'n the deal a bit, I will provide accomodations at the building site and all the beer you can drink!!!
Hard to pass up I know so I will give you some time to think about it.

Damnit man! With NO work for me @ this moment, that sounds like something I might consider!:D

SkiDog
02-21-2012, 10:05 AM
Maybe a GC can chime in but are'nt these jobs paying in the neighborhood of $15-$20 per hour (depending on location)?

You are not doing the expensive stuff (HVAC, Plumbing, Electrical) so unless you just have a lot of time on your hands and want to do it on your own then I am not sure how the math is going to add up to much of a savings.

Yea, thats where a lot of people don't realize the cost savings againt what it will cost them to do it. people don't realize that if they take the time off of work to do these types of things, are they really costing themselves more than just hiring a Pro to do it. That is IF they are not getting paid from their job when they take the time off. In his case, he's got plenty of vacation time built up, so it might not be such a bad deal for him.

Hammer
02-21-2012, 12:20 PM
Damnit man! With NO work for me @ this moment, that sounds like something I might consider!:D

If only the GC license transfered across state lines. If it did I would be all over it.

jkski
02-21-2012, 04:55 PM
Damnit man! With NO work for me @ this moment, that sounds like something I might consider!:D

You've got a couple of weeks to mull it over... as the weather around here is not really conducive to starting the project!!! The boat is all ready to go as is the lake, ......not that I am trying to entice you or anything!

Again, appreciate the advice from everyone. You are correct in that the jobs I would "like" to do are fairly low in terms of cost as compared to other items but they are things that I enjoy doing and will take satisfaction in knowing that I did when all is said and done. My time is valuable so I will have to evaluate just how valuable it is when I look at what someone else will charge to do these jobs.

rgardjr1
02-21-2012, 06:19 PM
I built our lake place two years ago. I was the GC, but I had my wife's uncle helping me. At the time her uncle was getting ready to retire from 30+ years as a home builder and after looking at our plans (simple floor plan) he said it was a job I could handle with his help. He got bids from his subs for framing, siding, insulation, roofing, and finish carpentry. I was able to buy all my lumber, windows, and other materials at his cost through his suppliers. I handled the excavation & concrete, drywall, electrical and paint with my subs. The excavation & concrete sub just about killed me. Dropped the ball at just about every opportunity. At this early stage all I could think was "what the h*ll have I gotten my self into". Once we got to framing things turned around and I didn't have any more huge problems. The biggest pit fall with being your own GC is you may not have any relationship with your subs. There won't be another job coming their way from you so you don't have a whole lot to hold over their heads-other than payment. I did all the tile work in our place myself and did find it dragging out and holding things up because I was working mostly weekends. In my case, with out my wife's uncle, there would have been no financial benefit for me to be the GC. I'm sure I would have payed more to build our place with me as the GC than paying a real GC to run the job. I can still remember driving home on those Sunday nights after being on my hands and knees setting tile all weekend just wondering if it was ever going to be over. Sure is nice now that it's done though!