Steve: This is stevecurrington.com and Colorado Springs Mortgage The Steven N’ Tyler show episode number 81.
Recording: Welcome to The Steve N’ Tyler Show, with stevecurrington.com and Tyler Whyburn. “Who negotiated the contract for you?”, “A realtor.” “Oh, you’re pretty smart. Well good for you man.” They are talking about everything you need to know about mortgages, home loans and more. Nobody knows mortgages Colorado Springs Mortgage like these two. Get ready because here is Steve and Tyler.
Steve: What’s up Tyler?
Tyler: What’s up?
Steve: What are you doing over there bro? Doing Colorado Springs Mortgage a little Facebooking at the start of the show? Hey, I think I’m going to go live on Facebook for this episode. We’re going to talk about how construction loans work. I hope everybody’s doing wonderfully out there that’s listening. If you’re tuning in to this podcast we have 81 of these and it’s like mortgage 101 for your Tulsa Mortgage. What that means is there’s lots of topics and lots of information out there that might be able to help you with your purchase of a home or your financing of the home.
Tyler: Where’s that information? It’s on our podcast.
Steve: Yes we basically have a topic for every single thing you can probably even think of.
Steve: After 81 of these, we started recording Colorado Springs Mortgage them yesterday and we’ve gone non-stop for — this is hour number 27. I’m totally making that up. We’ve been doing this for, I don’t know how long, it’s been a while. So we’ve got a lot out there. There’s a lot of content so don’t forget that. Today we’re talking about how do construction loans work. Tyler? Do you want to chime in on how construction — I’m doing a mortgage loan on a house that’s already built versus I’m doing a construction loan. Construction loan is different from regular mortgage but typically when you get a construction loan you’ll need to also get a mortgage at the end. Yes?
Steve: Anything to add? Tyler is on his phone. I’m like, “Tyler get off your phone.” Hey I’m going to play the tune.
Recording: Tyler are you awake? Wake up Colorado Springs Mortgage Tyler.
Tyler: Sorry, I just got the angry wife. We have two wasp nests in our bedroom from our remodel. So we got to get that fixed.
Steve: How do you get a wasp nest in your bedroom?
Tyler: I have no idea.
Steve: Was the door open and they built it while you’re out of town?
Tyler: I don’t know.
Steve: You weren’t gone for that long. Good so let’s get back to a construction loan. Let’s talk about, “I want to get a construction loan,” versus — we talked about this at our previous podcast versus just buying a house outright.
Steve: It’s really not that simple.
Tyler: No. No, it’s not.
Steve: Because really when you’re getting a construction loan there is a way you can do what they call a construction [intelligible 02:57] which is a single close concern that — That’s a whole other topic but-
Tyler: Or you just find a builder that get’s his own construction loan.
Steve: You can do that, you can find a builder Colorado Springs Mortgage that’s going to build a house for you. You’ll probably pay a little bit more. If you get your own construction loan then you’re being your own general contractor and then finding a builder to come in and build the house for you. In a in a construction loan world here’s what that looks like people, you go to find a lot, you buy the lot, maybe you get a loan for the lot, maybe you own the lot outright. Then you go to a construction lender which we have — you know we can help you that — that gives you a short-term loan. Because that’s what a construction loan is. It’s a short-term loan. It’s going to be for the term of how long it takes you to build the house. Depending on how quick you want to build the house, if you’re extreme makeover home edition maybe build a house in seven days, probably not. It’s probably going to take you six, nine, twelve months to build the house.
So you’ve got to get a loan that, let’s say the house is going to cost you, I don’t know, 300,000 to build and it’s going to be worth 350,000 when you’re done. You have to go get a construction loan to cover the cost of the construction of it. In order to do that you’ve got to go get plans, you’ve Colorado Springs Mortgage got to have an architect that either builds your layout of what your house is going to be, you’ve got to get the plans and specs over to the lender that’s doing the constructional loan, you have to get a plans and specs appraisal, so that the lender that is doing the construction loan knows that the amount that you’re borrowing is going to be not more than what the house is going to be worth when it’s done, because that can be a problem right Tyler?
Steve: Like I spend $300,000 building a house that’s worth $200,000 that probably wouldn’t be a good idea.
Steve: There’s a really a lot that goes Colorado Springs Mortgage into that and I don’t think we could even cover all on a 10 to 15-minute podcast but we’ll try to hit some of the hot points. When you do a construction loan at different phases of the construction you get what they call draw. So you go to your construction lender and you say, “I need to put the foundation. So here’s my plans and specs, here is what the foundation’s is going to look like, here’s what’s going to cost,” they give you some money to go do that.
So you go get it done and – this is what we’re talking about earlier in our previous podcast with the guy that who was building his house and had the driveway done and they built twice the size of driveway he was expecting. In that situation he might have got a draw Tyler for 10,000 bucks to pour to the foundation and you know build a driver, whatever happened. And then the contractor that comes out and does it, overbuilds it, maybe the expense is higher. Now you have to go back to your construction lender and say, “I need more money to finish the foundation,” and they go, “That’s not what the plans and specs said. It should have cost $12,872.16.”
The difference, maybe they might make you make it up. If it was another three grand maybe you’re coming out of pocket another three grand. It’s not all fun and games kids, so be careful. So, without getting into too much detail on that you’re essentially as different things happen throughout the process you can show work being completed. Now you need the framing done, you get a draw to pay the framer to go in there, you need the roof done, you get a draw to get the roof done, you need the plumbing done, you need the drywall done. Every single phase of the construction, you’re getting draws from your construction lender so that you can pay for that work to be done, and then when you’re all done and the house is complete that’s where stevecurrington.com comes in to get you your Colorado Springs Mortgage permanent loan right Tyler?
Steve: I’m going to get a permanent loan now. What’s a permanent loan?
Tyler: It’s a 30 year, 15 year, fixed rate mortgage. Whatever you want.
Steve: You get fixed rate loan that you’re going to get Nicky [inaudible 00:07:04]. I said [inaudible 00:07:06] watching live on Facebook. “Now my house is done but I have a loan for 300,000 bucks with this lender that did the construction and it’s been 11 months and 15 days and my loan is due in 12 months, so now I have to pay it off so.” What we do, is we’ll start the process of your new loan before the house is actually complete. That way, as soon as it is complete we get that final inspection we can go and close and it’s really a refinance at that point. That’s what you’re doing. When you do a construction loan and you do your permanent loan you doing a refinance. Because you’re getting a new loan and you’re paying off a current loan. Even if it’s a construction loan it’s a refinance.
There’s lots of different roles that go into that. You’re going to want to make sure you get the lender that the knows that there’s rules that that deal with whether you’re refinance loan to value is based off a new appraised value, whether the refinance loan value is based off your construction costs, how much money you might have to bring to the table, what your lender value is, are you pay mortgage insurance. There’s a million different things that go into that, and you don’t want to try to figure that out after you start building a house. We have a lady right now super nice lady, right? Foundation is going on her house, she’s not approved for her permanent loan. She got her construction loan, she might actually get a house built but she can’t qualify for the permanent loan. It’s going to be a problem.
Steve: Her builder isn’t going to be happy if he did the construction loan or her lender that’s doing the construction loan isn’t going to be happy if her construction loan matures after 12 months and she can’t get a loan to pay them off. You just want to make sure that you’ve had all that. What most people do is they’ll come to us, we’ll get them qualified for their permanent financing and then sometime between what, Tyler, 90, 60 days, something we’ll actually start on their loan, on their permanent loan. And that way, as soon as the house gets done we come in and do a permanent loan and we move on the road.
We had one last month that a Susan, our Missouri office that this lady was — and she actually didn’t even do the construction loan, so it’s kind of working as a purchase for her. But they were desperate to close because she had to be in there by Friday, she had to be out of her other place. Well, they weren’t done with the house, right? So that can be a big problem. If you’re trying to get your permanent loan and whoever’s building it hasn’t actually finished it, that can be a problem. You just want to make sure that your timeframes are in there and all that stuff. I mean all of that’s important, right Tyler? All of it’s important. You want to make sure-
Recording: Tyler are you awake? Wake up Tyler.
Steve: So you just want to make sure you cover all that sooner rather than later, , not after. Because it can get really nasty if you did a construction loan-
Steve: and the term is 12 months, and after the end of the 12 months the house wasn’t completed, it wasn’t done to specs, it went over budget. It happens a lot, by the way, to really good people. Because you know why? You go in, they’re putting up the walls, and you go, “Oh you know what, we didn’t think Colorado Springs Mortgage about this honey. We really going to have that wall over here?” That’s okay, what do you got to do Tyler? You want to move the wall?
Recording: Show me the money.
Steve: Show me the money. This is going to cost you, it just going to cost you. Make sure that you are getting educated by someone that knows what they are talking about, like stevecurrington.com, before you get all a little crazy and start doing construction loans and start doing all that kind of stuff. I will leave it at that, visit stevecurrington.com if you need more information on construction loans or tylerwhyburn.com and-
Recording: For more information go to getkoalafied.com That’s G-E-T-K-O-A-L-A-F-I-E-D.com
Steve: And don’t go over budget on your construction loan. It will be painful. That’s all we have for today. Thanks for listening, see you Colorado Springs Mortgage
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Steve: This is stevecurrington.com and Colorado Springs Mortgage The Steven N’ Tyler show episode number 81.