First Steps to Building a House
 

1. What is my first step to building a home?

It is suggested that prior to obtaining your floor plans, you sit down with a lender and discuss how much of a loan you would qualify for.  Based on this figure, the value of your land and liquid assets you have, you will have an idea of how much you can afford to spend on the construction of your home.  From these numbers you will have an estimate of the size of the home and amenities that you can include when having floor plans drawn and bids obtained.

2. When do I apply for a construction loan?

Application for a construction loan should not be made until you have your completed floor plans, building specifications and have received all bids.  Loan amounts are determined by appraised values and an appraisal cannot be completed without this information. 

3. Do I need bids for everything if I am doing some of the work myself?

Yes.  Bids need to be obtained for everything even if you are planning on doing some of the work yourself.  These bids are needed so that in the event you cannot do the work you are planning to do, there are enough funds available to finish the project. 

4. Is it important to use licensed and bonded contractors?

Yes.  Even though you can cut some of your costs by using the cheapest contractor you can find, you need to make sure that the work is being done properly and to code. In addition, if you choose an unlicensed contractor you may be held liable for on-the-job injuries.  Some homeowner insurance polices will not cover this liability because the contractor is not licensed.  The licensed and bonded contractor knows his trade and has been tested and is bonded for it.  You want the job done right the first time. 

5. Do I need to own my land free and clear of any mortgages?

Not necessarily.  If you plan on using your land as down payment the less you owe on it, the better it is.  If you do have a mortgage on the land, the lender who will be financing the construction will pay off the mortgage in your first draw.  The more you owe on the mortgage means less loan funds to be used for construction costs and less down payment you actually have. 

6. What is the difference between a construction loan and a permanent loan?

A construction loan is used only during the actual construction period of the home.  This loan is generally given for a term of 9 months, but most lenders will extend the term if additional time is needed.  Interest only is normally collected on the construction loan.

The permanent loan is entered into when the home has been completed and the appraiser has made a final inspection.  It is at this time that your regular monthly payments will begin.

7. What are some questions to ask when shopping for a lender?

·         What is construction loan APR? Remember to shop APR and not rate.

·         How are payments made during construction period?  Monthly, quarterly, etc…

·         At what point can I lock in my rate for the permanent loan?

·         How many draws can I have without extra fees?

·         What is an estimate of what closing cost will run?

·         Does the lender do the construction loan as well as the permanent loan? Not all

·         Lenders do construction loans, which would double your closing costs and make you     have to apply for two loans. 

8. Besides my floor plans, building specifications and bids what would I need to apply for a loan?

·         Current pay stubs

·         2 years most recent complete income tax returns with W2s

·         Statements for any checking, savings, mutual funds, retirement account and 401Ks.

·         Copy of driver’s license

 Please note that the lender will not be able to collect any of this information from you until he has properly disclosed to you the Good Faith Estimate.


Article provided by:

First Federal Bank of Louisiana
Lynn Calles
337-480-0181

Mike Doland
337-480-0806