Home Improvement

Most new homes in America are built by builders or developers who build the new home with their own money or lines of credit in order to sell the finished home to the new customer. The new buyer simply obtains a regular “buy money” loan and buys the house.

This is the simplest form of construction financing. Of course, the builder’s borrowing costs are built into the price the new home buyer pays.

Increasingly, but, this form of financing is becoming rarer. Often, builders are becoming more reluctant to use their own funds to build for someone else as their banks are tightening their lines of credit and making it more hard and expensive for them to get the needed funds.

As builders become less likely to fund your new construction, prospective new home owners who wish to build a custom home are forced to fend for themselves when it comes to construction financing.

Enter the construction to permanent (CTP) loan.

There are a wide variety of construction loan choices out there. And many of them are woefully inadequate for most people – especially if you want to act as your own general contractor (known as owner-builder construction).

Local banks tend to be very conservative and will not even consider lending their money unless you fit exactly into their guidelines. This typically means having a fixed price contract with a licensed and approved builder, selling your current home prior to qualifying, and even making a large down payment or owning the land first.

Occasionally, a local bank will give you permission to be your own contractor, if you jump through enough hoops for them. They may require an extra large down payment or that you own the land free and clear before they lend you the money to build. In the end, most local bank’s construction loan programs will have one or more restrictions that make their programs unusable, more restrictive and even more expensive than a excellent alternative.

As an owner-builder, your search for a construction loan should be focused on finding the loan features that will best fit your scenario. Finding this type of program gives you the greatest chance of success and your best opportunity to save money on your project.

Within the world of owner-builder construction loans, there are only a handful of options that make sense. Some of the features that should be most vital are:

o Ability to be your own contractor without needing to make a large down payment – if any at all. “Large” means anything more than 5% for a conventional size loan and 10% for a loan up to $1,000,000.

o No “consulting fees” or monthly “administrative” fees charged to you just for doing a loan. Please know, you need to expect to pay for an owner-builder loan in the form of origination or discount fees, but you should not also need to pay a consulting fee.

o No requirement to sell your current home before you can qualify for the new construction loan. Many lenders will force you to sell your current home before you start building the new one, meaning you will be forced to go twice in a small time just to get the loan.

o No payments, interest or other, while you build. The best CTP loans allow for an “interest reserve” to be built right into your new loan so you are not forced to make both your current home’s payment plus the new one. Most programs that allow for an interest reserve also allow you to choose to make the monthly interest payment if you want.

o No upfront or “application” fees. Avoid any lender who requires any kind of upfront fee or “deposit” of any kind.

o Easy draw administration and unlimited draws. This means easy for you, the owner-builder, not the bank or your sub-contractors. After all, if you can’t get access to and control your money, all the other terms really don’t matter.

o One-Time closing. The best construction loans allow you to close only once for both your construction funds and your permanent mortgage. This will save you several thousand dollars in the long run.

o A staff of professionals who know both construction and construction financing. Question the person you are speaking with how many homes they have built themselves as an owner-builder. If you are dealing with a loan officer who has never built his or her own home and cannot speak to you from specific experience, you should look elsewhere.

The importance of working with knowledgeable professionals cannot be stressed enough. Half of the battle is learning to question the right questions.

Note that the above list did not mention anything about construction interest rates. It is not that rates are not vital; it is just that they are among the least vital features of a excellent owner-builder construction loan.

This does not mean that owner-builder loan interest rates are necessarily higher than other construction loan rates – they will probably be about the same. But, who cares? It really shouldn’t matter to you if the interest rate during the period of construction is the same, a small lower, or even a small higher than a construction loan in which you are required to hire a builder.

Why? There are a couple of reasons, really.

First and foremost, you are seeking a loan that will enable you to save tens of thousands of dollars by acting as your own contractor. The tiny (and it is tiny) difference in interest you will pay over a six to twelve month period is meaningless when compared to what you will save by being your own GC.

Second – and this is vital to remember – despite the fact that every potential owner-builder is positive that he or she will build successfully on time and under budget, the reality is that owner-builder loans represent the most risky category of construction loan a lender can make. That is why there are so few available to start with. And, that is why you need to be prepared to pay a small more for the privilege of getting one of these loans.

Smart owner-builders know that they need to focus on that “huge picture.” Your goal is to build the exact home you want, your way, while saving tens of thousands of dollars. If the vehicle you need to reach that goal costs a small more, why should it matter? It is vital to remember that:

A) Construction loans are small-term loans and the rates are therefore tied to small term funds – typically the prime rate. As the prime rate goes up, construction rates* will follow. And, vice-versa.

B) Owner-builder construction loans are very risky and very specialized. Accept this fact and the fact that you may pay a small more for the privilege of having access to this type of money.

C) Your permanent rate, and the choices you have related to that, is the more vital thing to consider when looking at rates.

D) Rates are the least vital feature to shop for. Remember to focus on the features that will benefit you the most and help you accomplish your goal – the huge picture!

The smart shopper shops for loan features, not interest rates. The features that an owner builder needs are not necessarily the same as those a borrower hiring a general contractor needs. Refer back to the list of vital features above as you examine loan programs. And always remember that you are in charge during this process.

Kitchen Cabinets are by and large the core of any kitchen. They can be highlighted by kitchen appliances such as the refrigerator, stove, cooktop, dishwasher and microwave, or these appliances can be modified to blend in by using panels that match your kitchen cabinets.

Shopping for kitchen cabinets can be intimidating, especially for a first time buyer. There are hundreds/thousands of major kitchen cabinet companies, and many more smaller custom kitchen cabinet shops where you can get any cabinet made from any species of wood that your mind can imagine. Add to that list the explosion of RTA Kitchen Cabinet importers, and the laminated cabinet manufacturers, and suddenly the list can be overwhelming. Not to mention the fact that higher price always means high quality in construction, or more features being available.

In the past, pricing had always been the way to categorize kitchen cabinets. Traditionally, tthe higher-quality cabinets simply cost more money. As I mentioned before, with more and more importers conforming to the KCMA (Kitchen Cabinet Manufacturers Association) building standards, some of the RTA Kitchen Cabinets or Stock kitchen cabinets can really be a sturdier cabinet than the traditional, made to order cabinets. Regardless of what type of kitchen cabinet you choose to go with, it does not take much effort to spend tens of thousands of dollars on the actual kitchen cabinets.

Most kitchen cabinet manufacturers build their kitchen base and wall cabinets in standard sizes. The kitchen base cabinets are often 34.5 inches tall and 24 inches deep. They come in widths starting at 12 inches and can go up to 48 inches often in increasing width increments of 3 inches. Kitchen wall cabinets are often 12 inches deep and 30 inches or 42 inches tall. They also come in the same size widths as the base cabinets. Wall cabinets also come in several different heights and depths for locations such as over the refrigerator or over the microwave/hood range unit. With custom kitchen cabinets, you have even more choices available, since the kitchen cabinets will be made specifically for your kitchen space.

Different semi-custom kitchen cabinet manufacturers make different-sized kitchen cabinets for all sorts of special looks and situations. It is not uncommon to have one cabinet extend beyond adjacent cabinets to make a distinguished look. It pays to shop around to see all of the different possibilities and special cabinet features offered by the custom and semi-custom kitchen cabinet manufacturers.

One of the largest advantages to right custom kitchen cabinets is the ability to make one giant base or wall kitchen cabinet instead of separate boxes that are screwed together by the installer at the jobsite. A custom-cabinet maker can easily make one giant base cabinet 8 feet long that installs as if it were a piece of furniture. The same is right for wall kitchen cabinets. The advantage of this method is the lack of vertical seams where two traditional cabinet boxes would mate up to one another.

Pay particular attention to the materials used to build the kitchen cabinets. Some kitchen cabinets are made with minimal-quality engineered lumber, particleboard, or fiberboard. . If you plot to load a wall cabinet with heavy traditional china, the weight of the dishes may cause the cabinet to pull apart over time. This is particularly right when it comes to the semi-custom cabinets that the name brand cabinet manufacturers sell at the huge box stores (which is why price is not always an accurate gauge of cabinet quality). Many of the RTA Kitchen Cabinet manufacturers use solid plywood sides, which obviously makes a strong kitchen cabinet box than a particleboard or fiberboard box. When it comes to custom cabinets, the material choices are endless and can usually be specified by the customer.

Another factor that will determine the price of kitchen cabinets is the material used to hold it together. Custom kitchen cabinet manufacturers will often use a combination of dovetailed joints, wood biscuits, and glue to make tight joints. Mid-grade kitchen cabinets will have a wide range of materials holding them together (staples and nails on the lower end, to cam lock assembly and wood glue on the higher end). Most RTA Kitchen Cabinet Manufacturers utilize the cam lock system, which makes a nice sturdy cabinet, and when enhanced with wood glue, can last a life time. Steer away from any kitchen cabinets that are using staples, wooden dowels, or just screws. The strength of the cabinet will be compromised at the joints with these weaker joining materials.

I have been remodeling houses for over 10 years, and have been able to weed out some of the kitchen cabinet choices that didn’t work for me. If you are interested in learning more about my personal preferences, check out my author bio.