Construction Loan Facts

What is a construction loan and how does it work? That is a good question and one that I am still figuring out to a certain extent. Here is what I have learned so far. To start off, they are what is defined as a story loan. Basically that means your lender will need to know the ins and outs of the project and will from that information determine the quality of candidate you are for the loan. If they deem you to be a good candidate, you’ll be offered the loan. A construction loan, however, differs from a standard home loan in that you will not get the entire loan amount up front. Rather, you will get it in installments as work is completed--partly why I need to get estimates for as much of the project as possible. Also you will not be paying principle on the loan until the project is completed. The interest you are paying is only interest on the amount you have withdrawn to date. At the time of completion, the loan will be converted into a standard mortgage for whatever amount you withdrew throughout the course of the project. The project will be considered complete only after all of the said work is complete. Click here or here if you’d like more info on construction loans.

Current Condition

Presently, the house is unlivable. There is no working plumbing, electric, or AC. There is, however, a new furnace and ductwork, electric panel, and the plumbing has been tied into the city sewer system. The walls are plastered and are 10‘ tall on both levels. The Ceiling on the first floor was dropped to 8‘ leaving an unusable 2‘ space between floors. There is massive trim throughout most of the first floor and portions of the upstairs--I hope to remove this, have it dipped to remove many years of paint, and reinstall it. The newel post at the bottom of the stairs is no longer attached but may be salvageable--it‘s one of the identifying features of Italianate architecture. The windows are intacked but will probably need to be reglazed and reworked to make sure they work smoothly and seal properly--they are 3’x7’ on the first floor and a little shorter on the second. The foundation looks to be solid. A rough hewn tree serves as the girder. There is a new roof and the exterior looks to be in decent shape--needs a coat of paint and a couple of the bric-a-brac’s on the front and back porches are missing. The house has a lot of potential. I just need to bring that potential to light.

Revising the Floor Plan

In order to get estimates so that I could move forward with my building loan I needed to have working floor plans. Since the current floor plan was outdated I had to develop a new one that would meet the needs of today’s family. Over the past few days that is what I was working on (next weekend I will upload some images). Several things to keep in mind when developing an ideal floor plan:
1) Minimize hallways--hallway are the equivalent to wasted space.
2) Keep mechanicals in mind--you should have access panels behind bath tubs so it’s nice to have a closet behind the tub to hid such panels. It’s also nice to keep things that require plumbing close together (helps reduce plumbing costs).
3) Be sure rooms are usable--long narrow rooms are difficult to furnish. Is the room big enough to fit furniture without feeling cramped?
4) The kitchen triangle (http://www.merillat.com/space/work-smarter/index.aspx) and work stations (http://design.hgtv.com/kitchen/Video_detail.aspx?id=228).
5) Traffic flow--you won’t want to have to walk though the study in order get to the kitchen or 1st floor bath. http://ezinearticles.com/?Efficient-Floor-Plans-Provide-Smooth-Traffic-Flow&id=537153

1st step: Buy the House

I am currently in the process of submitting a bid to buy the house pictured above. This would be a whole lot simpler were it not for the fact that I plan to get a building loan to finance the renovations. In order to acquire such a loan I must list what I am going to do to the house and get estimates for the work. Though I plan to do most of the work myself, the bank wants to know that, in the event that I get injured prior to the projects completion, I have sufficient funds to complete the project. One thing I must keep in mind as I put together my estimates, any work that I say I am going to do will have to be done before the bank considers the project complete. Example: If I say I am going to install crown molding throughout the house but decide later that that is overkill, I’m still going to have to put it up. I can add things that add value but can’t remove such things. Needless to say I still have a great deal of work to complete before I am able to even put an offer on the table.