Building Custom Construction on San Juan Island

Posted February 28, 2021 at 5:00 am by

Contributed Photo. Merri Ann Simonson.

By Mer­ri Ann Simon­son, Man­ag­ing Bro­ker, Cold­well Banker San Juan Islands Inc

As inven­to­ry is very low for exist­ing sin­gle-fam­i­ly homes, more and more buy­ers are con­sid­er­ing cus­tom construction.

Build­ing cus­tom allows you to design and build the exact floor plan and exte­ri­or ele­va­tion that suits your needs, your bud­get and is well cit­ed to the land.

Step One:

Deter­mine your bud­get for the project. If you are not using cash on hand and plan to involve a lender, then you need to deter­mine your max­i­mum loan qual­i­fi­ca­tion. You need to be pre-qual­i­fied by a lender for your per­ma­nent take-out loan as that is the loan that pays off your con­struc­tion costs or construction/land loan.

Funding Arrangements

Pri­or to find­ing the per­fect par­cel It is imper­a­tive that you plan your pur­chas­ing method. Cash always works but .… . .

Sell­er financ­ing is a good option, they basi­cal­ly act as the bank and take a secured posi­tion on the prop­er­ty with a note and deed of trust. Sell­er financ­ing is typ­i­cal­ly short-term in nature such as 1–3 years, the inter­est rate is at least 1–2% above a con­ven­tion res­i­den­tial loan.

The down pay­ment is around 20–30%, but typ­i­cal­ly, no appraisal, or junk, or loan fees. The sell­er will want to review your cred­it report and 2- year tax returns. Arrange­ments for sell­er financ­ing is quick­er than insti­tu­tion­al loans and can be processed with­in 20 days or less from mutu­al accep­tance of the contract.

Insti­tu­tion­al financ­ing is more dif­fi­cult to arrange. Many banks will no longer con­sid­er land loans due to the loss­es they incurred dur­ing the great reces­sion. Most land loans are orig­i­nat­ed by a port­fo­lio lender as the loans are not saleable into the sec­ondary mar­ket. The terms are short in nature such as 1–3 years,
20–30% down pay­ment, the inter­est rates match their per­ceived risk so they are 3–4% above res­i­den­tial loan rates, 2 point loan fee with under­writ­ing sub­ject to an accept­able appraisal, cred­it report and tax returns.

A con­struc­tion loan is an option if you are all ready to go. A con­struc­tion lender will not fund until their file con­tains your Gen­er­al Con­trac­tor con­tract, an accept­able appraisal and title report, cost break­down, descrip­tion of mate­ri­als, per­mit from the Coun­ty, and a full work­ing set of plans and specifications.


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Categories: Real Estate

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