Building Custom Construction on San Juan Island
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.
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.
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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