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Finance FAQ

What is the difference between a construction loan and a mortgage?

While both loans are used for obtaining a new home, there are major differences. The construction loan is a short-term loan generally obtained from a local or regional bank and used for the building of the home. A mortgage is a long-term loan generally gotten from a mortgage company and used to pay off the construction loan. There are exceptions to both of the above. The mortgage is typically at a lower interest rate and is amortized over many years, typically with a fixed payment. Variations are plentiful. The construction loan is considered higher risk and thus 2-3 points higher in interest rate. Payments on it are interest only for the amount of funds actually drawn or used.

What does it take to qualify for a construction loan?

You probably have good income and good credit, but you still need to borrow funds to build that new home. Maybe you have enough money to buy the land, but not enough to build your new custom home. Maybe you’re wondering if you really could build your own custom home. In today’s market, bankers are looking for several things in a client file for approving a construction loan. Provable income, good credit, Cash in hand, DEBT-TO-INCOME ratio, good appraisal, and decent budgetAll of these have to fit. Any one of these that is outside the box can create difficulties in qualifying for a custom home construction loan.

So if you’re thinking about building your own new custom home, contact us so you can be put in touch with a Texas lender who can verify that your credit qualifies for an owner builder construction loan.

How much cash will I need to qualify for an owner builder construction loan?

In today’s market, bankers are looking for several things in a client file for a construction loan. Provable income, good credit, Cash, DEBT-TO-INCOME ratio, good appraisal, and decent building budget. All of these have to fit. Any one of these that is outside the box can create problems in qualify for a loan for building your own home.

Liquidity means that you have available cash in the event that something does not go according to plan during construction. How much? It varies from bank to bank, but one broker told me lenders are looking for a minimum of 7% of the loan amount, preferably closer to 10%. So does it have to be cash in the bank? Not necessarily. There are a number of creative ways this can be done. 401k, home equity loan, occasionally even a credit card advance.

Conserve cash. A family who lived in San Antonio sold their home, and netted 70K cash. They purchased 10 acres East of San Antonio, their dream property, and financed the purchase with a 20% down payment. They spent the rest of the $70,000 on electricity, well, driveway and down payment on a recreational vehicle to live in on the property, leaving them with no cash or savings. That’s when they called us. We were not able to get them a construction loan. How should you handle this situation? Call us when you find land. Most development expenses such as utilities and driveway can be added to the construction loan. If that family had called us before they spent their cash, today they could be enjoying their new custom owner built home, instead of merely existing in a cramped RV.

Another client who wanted to build near Bryan/College Station found an unbelievable deal on Wolf appliances. He had 30k to his name. Without consulting us, he bought his appliances for $8900 before he was approved for his construction loan. Because his available funds were now below the bank threshold, he was denied the loan, and could not qualify as an owner builder. The bank gives you no credit for any materials or supplies you have bought for the new home. That appliance savings cost him a lot of money in savings he could have achieved as an owner builder.

Another would be owner builder had been collecting materials for years for his new home. He had all his windows, all his appliances, in fact he had 4 storage units full of materials for this new home. But he had no cash. He had to save up for a couple of years so he had the cash to qualify for the construction loan.

So don’t buy a boat, don’t buy a new car. Hang on to cash. It could make the difference when qualifying for an owner builder home construction loan. If cash is tight, get in touch with us. We have one lender in Central and South Texas that not only offers owner builder construction loans with low down payment, but they offer a “direct pay” program, meaning you don’t have to float the construction costs and get reimbursed by the bank. Instead, you submit invoices to the lender and they will pay the invoices directly to vendors and contractors. That way, you can operate as an owner builder with less cash reserve and build a lot more equity into your new home. The good news is that an overwhelming majority of our prospective clients qualify for loans for building their new home. It is extremely rare that we are not able to accomplish this task.

Should I pay off the land purchase loan?

A common idea exists among many who want to build a new home that you must pay off the acquisition loan on the property before you can qualify for a construction loan. It’s a total myth. In fact, sometimes paying off your land loan can be a tragic mistake. Why? Because bankers don’t think like most people. In today’s market, bankers are looking for several things in a client file for a construction loan: Provable income, good credit, Cash in hand, DEBT-TO-INCOME ratio, good appraisal, and decent budget. All of these have to fit. Any one of these that is outside the box can create major difficulties in qualifying for a custom home construction loan.

So should I pay off the land purchase loan? While it may shock you, the answer is: Probably not. If paying off the purchase loan means you have little funds left in the bank, don’t dare pay off the construction loan. Remember, bankers think differently than non-bankers. Bankers are in the business of selling money, and they want to loan you as much as they can. So, believe it or not, they would much prefer that you owe 75k on your land, and have 75k in the bank, than that you have paid for land, and zero in the bank. You can get a construction loan in the first situation, but not in the second.

Check with our construction lender first. If you can pay off your property, and still have 50-100k in the bank, then OK. Better yet, call us, and we will put you in touch with a Texas lender who can answer your questions. The best? It doesn’t cost you one penny to find out how to best qualify for your new owner builder construction loan.

What credit score do I need to qualify for an owner builder construction loan?

Credit and owner builder construction loans is a moving target. It depends on the bank or lending institution. I’m making this video in 2019. To qualify for a construction loan, most lenders are looking for a minimum credit score of 680 and above. In addition, no recent foreclosures or bankruptcies, and no late mortgage payments in last 12 months.

So what can you do if this is a problem? Sometimes you can do credit repair. If you are willing to spend some time on research, you may be able to repair your own credit. Be aware that there are a few companies who really work to repair your credit, while many others are scams. Be careful.

You will generally need at least 4 good lines of credit. That could be a car loan, a mortgage, credit cards, and any number of other types of loans. Sorry, Dave Ramsey fans. Bankers despise Dave, and you need a banker for an owner builder construction loan. The golden rule applies here. You’re familiar with the golden rule? In lending, the golden rule is: He who has the gold makes the rules. You are asking a lender to put hundreds of thousands of dollars on the line for your owner builder construction project, and lenders ask you to prove that you have handled credit dependably in the past. So what should you do? Contact us so you can be put in touch with a Texas lender who can verify that your credit qualifies for an owner builder construction loan. We can even show you how to quickly build credit if you lack enough lines of credit. So contact us today for more info.

Should I get a short term loan to buy my land?

So you’ve found the perfect property, and are excited about getting started. But you have limited funds, and need a loan to acquire the property. Should you head to the bank for a loan? I suggest that before fore you find that perfect property, contact us to get with a great lender and get prequalified. There are 2 ways to handle the acquisition loan. One way is called a bridge loan. You want to build soon, but don’t have everything together yet, so you need a short term loan to buy the land. We call that a “bridge” loan. It bridges the short term so you can properly prepare for construction. That will certainly get the job done, but it may involve extra closing costs. A second option that may save you money is to negotiate with your seller for a delayed closing. At this point, we will probably need 3 months to prepare for construction. During the 90 day period, you can either buy plans off the internet, or get a designer to draw custom plans, then get quality cost estimates or bids, and get the package to the lender for approval. Current lender approval is taking at least 1 month in central Texas, so you only have 2 months to get the entire package to the lender. While it may be hard to imagine that it could take that much time to prep for construction, it really does. It can be done in a shorter time, as a few clients have proven. But you really have to “have your ducks in a row. “ In another video, we describe what generally must be done to prepare for construction.

How much income do I need to qualify for a construction loan?

I love my clients and my consultants. One of the more difficult parts of owner building can be getting a construction loan. This can be a real stumper for clients, as they’ve never had a challenge getting a mortgage. But getting a construction loan is not the same as getting a mortgage. It’s especially true for an owner builder construction loan. Why? The bank is looking at you as the builder. Builders are expected to meet higher levels of financial security than someone who is just buying a home. Bankers don’t think like the rest of us. “Common sense” financial concepts, such as those taught by Dave Ramsey, may very well go contrary to banker thinking. You see, banks are more interested in the return of their money than the return on their money. That is why you have the golden rule of banking: He who has the gold makes the rules. To be fair to bankers, many of these rules are imposed by regulators. While there are many regulatory standards, each bank in Texas can make their own rules for construction loans. One of those rules is provable income. Lenders are looking for steady provable income, and they will verify that income. What does that mean in real life? Well, first. It’s not 2005. Stated income loans for building a new home in Texas do not exist currently. You need regular provable income. If you and your spouse have good jobs with a paycheck, that is best. It is often easier to qualify for the loan on your new home while you have a job, than after you have retired, no matter how much money you have in the bank. There are 2 situations where regular provable income can be a problem. You may be retired, with low living expenses, and a huge 401k. If you are not taking sufficient regular distributions from the 401k, lenders may frown. You can get a loan without taking regular distributions, but interest rates are higher in this situation. Secondly, if you are self-employed, it is common to write off much of your income, and show low income to minimize taxes. Lenders will ask for the last 2 years tax returns, and those returns need to show enough income to qualify for the loan. This is a double edged sword, and I know of no way around it. Contact us to find if you qualify for a loan for that new owner built dream home. We will put you in touch with a Texas lender that can give you answers.

Should I eliminate all credit card debt before applying for a construction loan?

Many future clients operate under the misconception that all credit card debt should be eliminated before applying for an owner builder construction loan. So should you? Not necessarily. Every loan is different. Each construction lender will have different standards for loan qualification. So before you pay off those credit cards, check with the lender. I have even had a client or two who had paid off all their credit cards, and had little remaining cash. Because they had good credit and a low debt-to-income ratio, they were able to get credit card advances to build up their cash in the bank and, after about 3 months, they qualified for the construction loan. Before you make a move that you think will improve your ability to qualify for a loan for an owner builder construction project, contact us. We can put you in touch with a Texas lender that can keep you from making a mistake that could kill your dream of building your own new Texas home.

How do I budget for owner builder construction?

Figuring out the cost of building a new home is one of the most daunting tasks that most owner builders face. If you want to build your own new custom home in Texas, we can help with cost estimates. Many factors go into determining the cost of construction. The land you want to build on may have a large slope, which can increase the foundation cost. The dirt may be highly expansive, and require a more costly foundation. The location of your new home can certainly affect costs. It generally is somewhat less expensive to build close to a major city, just outside of the city limits. But building far out in the country can drive up costs as well. Utilities can severely affect costs. A well could cost $14k or $40k depending on depth. Septic systems are generally more expensive than public sewer. Driveway costs can vary greatly, depending on the length and width of the driveway, and the material used to build it. The plan you choose can significantly affect costs. Generally, the more corners a home has, the higher the cost. The finishes you choose also affect costs. Stone is more expensive than Hardie plank. Granite counters are more expensive than laminate. In addition, when we are budgeting a new home, the cost must be for the entire project, and must be the cost of having the work done by contractors, even if you want to do some of the work yourself. So if you are wondering about the cost for your new home, contact us for guidance. There is no charge for an initial consultation.

What is Debt-to-Income(DTI) and why does it matter in qualifying for an owner builder construction loan?

In today’s market, bankers are looking for several things in a client file for a construction loan. Provable income, good credit, Cash, DTI ratio, good appraisal, and decent building budget. All of these have to fit. Any one of these that is outside the box can create problems in qualifying for a loan for building your own home.

DTI ratio means the amount of your debt compared to the amount of your gross income. Debt will generally include your current mortgage, car loans, credit card loans, student loans, and any other loan that normally shows up on your credit report. One client experienced major car problems during the time we were helping them prepare for building their new home. They decided that they had to buy a new car. The additional debt that they took on with that new car payment meant that their debt to income ratio exceeded the standards of the construction lender, and they were denied a loan for building the new home. So if you want to build your own new custom home and save lots of money, before you take on additional debt, call us so we can connect you with a Texas banker who approves owner built construction loans.

Why do I want a high appraisal?

In today’s market, bankers are looking for several things in a client file for a construction loan. Provable income, good credit, Cash, DEBT-TO-INCOME ratio, good appraisal, and decent building budget. All of these have to fit. Any one of these that is outside the box can create problems in qualifying for a loan for building your own home.

To qualify for a construction loan to build your own new home, one key component is the appraisal. The appraisal is required by regulations, and must be performed by a third party appraiser. In Texas, that means a licensed real estate appraiser. You want the loan appraisal to be as high as possible. Why? Because one criterion for the bank loan is that the bank will typically loan 85% of the appraised value. An occasional lender will loan 90%, and we have one lender that will loan 95% of appraised value, but at higher interest rates. If there is a land payoff, the bank pays that first, and the remainder of the 85% is available for building your new custom home. If the appraisal is not high enough, then the bank may require you to bring more cash to the table or pledge a CD. So what about the tax appraisal? Won’t this appraisal affect my taxes? Not in Texas. The tax appraiser has to do his own appraisal, and never sees this one.

Can my land serve as down payment for building a new home?

So you’ve owned your land for some time now and are concerned about down payment for building your new home. How much down payment do you need? 20%? One of the secrets of owner builder financing is that you are given credit for the equity that you will have when your new home is finished, if you have owned your land for one year when the home construction is finished. Assuming that you are building in an area where home values are equal to or better than the new custom home you want to build, your new home should appraise well. You rarely will need to put down 20% hard cash to build your new home on your own land. Call us to be connected to a Texas lender who can discuss the specifics of your project and guide you through the process. He can review your portfolio and determine if you have enough cash to move forward toward the dream of your own new custom home on your dream property.

Does my land have to be paid off first?

Yes, and no. First, no. It’s a common myth that you must pay off your land before applying for a loan to build your own new home. That’s a total myth. Bankers want to loan you money, and they require you to have some available cash as a working fund to qualify as an owner builder. So you do not need to pay off your land on your own. And, as explained in another video, paying off your land could be a terrible mistake. So does my land have to be paid for first? Yes. The bank will insist on paying off any existing land loan in order to lend the funds for new home construction. Why? The bank does not want any other lender to have a superior lien. So the first thing the bank does is pay off the existing loan. You merely swap payments from your current lender, to the bank as a part of your construction loan. Confused? Contact us to be put in touch with a Texas lender who can answer your questions about the loan so you can build your own home.

What about a one-time close?

Won’t I be able to save on closing costs by doing a one-time close? Few lenders offer an owner builder a one-time close. I’m recording this in 2019. I know of about 15 lenders in Texas who offer owner builder construction loans. Undoubtedly there are others. Out of those 15 lenders that I know, only one offers a one-time close, and that lender will not lock mortgage rates until about 60 days before construction is completed.

Why is that? When mortgage lenders lock the rates, they are taking a risk that rates will go up, costing them money. Typically owner builder home construction takes a little more time to complete the home than with an experienced builder. Builders who build the same floor plan over and over can complete homes in 3 months or so, but custom homes generally take longer, and owner built homes can take still longer. As a result, mortgage lenders in Texas rarely will do a one-time close for owner builder home projects. Some of those who do offer a one time close on owner builder construction projects have very stiff penalties if you go beyond the allotted time for the construction period. Call us to be put in contact with a Texas lender who can answer your specific questions about a construction loan so you can build your own new home.

Can I start construction and see how far my cash goes, and then get a loan?

Probably not. There are two major problems in Texas with waiting to get your construction loan. First, you generally need to have cash in the bank to qualify for a loan. If you’ve already spent your funds on beginning construction, those funds are no longer in the bank, and therefore you may not qualify for the loan. The construction lender is much more concerned that you have cash on hand than that you have a paid-for slab. Secondly, title companies and banks are very concerned that, when you start construction before you get the loan, you might neglect to pay one of those early suppliers or contractors, and that vendor or contractor might file a lien, which could be superior to the lender’s lien. So our strong recommendation is, if you need to borrow any money to build your new home, get your financing lined up before you start construction. Contact us to be put in touch with lenders who specialize in owner builder construction financing in Texas.

How much does it cost to build a home? How much do you charge per square foot?

One of the questions we get asked often at home and garden shows is: How much do you charge per square foot? Simple question. You would think there is a simple answer. This belies a lack of understanding about the different types of new homes and different types of builders. The most common new home builders are known as production or tract builders. They build new homes from a selection of their floor plans, building the same home over and over, on similar sized lots (generally 5,000-6,000 square feet) that they buy from a developer. The house and property are both bought from the builder. As a result, it is fairly easy to compare homes on a cost-per-square-foot basis. Less common are custom homes, where a new home is built on your property, with a floor plan designed just for you. The costs per square foot vary widely in this type of construction, as it is “customized” just for you. Not only is the plan customized, but the finishing materials are your choice, and the costs vary widely. Land costs vary widely as well. Bottom line: Expect to pay some more per square foot for a custom home than for a production home. Construction costs are also affected by the area where you want to build. BGCH offers a free cost estimate. Contact us for more information on current building costs for your area in Central Texas.

What if I have a foreclosure or bankruptcy?

You may still qualify for a new home construction loan, even though you have been through a foreclosure, repossession, or bankruptcy. We live in a country that believes in second chances. Generally one must wait 2-4 years after the discharge or dismissal (not start) of a bankruptcy before it does not count against you. During that time you will probably need to rebuild your credit. At a minimum, you will need 4 “lines” of good credit, such as a car loan, student loan, rent payment, or credit card. Contact us for a veteran lender who can, at no charge, advise you on a strategy to recover from foreclosure, repossession, or bankruptcy. One extra clue: Never be more than 30 days late on a mortgage payment. Most lenders require that all rent or mortgage payments be paid on time for the previous 12 months before a new loan can be approved.

Will a lender checking my credit cause problems in qualifying for a construction loan?

Generally no. Most borrowers are allowed 3 credit checks per year with no penalty. What does hurt is abuse of credit, where lender after lender after lender checks your credit. Other things that affect your credit score are payments more than 30 days late, bankruptcies, foreclosure, repossession and having a balance of more than 50% of the credit line on a credit card. For more information on maintaining good credit scores, check out

What if I don’t need a loan to build (I have the cash) but want a mortgage when the build is complete?

Under Texas law, the only way to qualify for a “mortgage” on your newly built custom home is to obtain a home construction loan before you begin construction. The construction loan is then paid off with the mortgage when construction is finished. In Texas, if you do not get a construction loan, when you are finished you can only qualify for a “home equity” loan, which has higher interest rates than a mortgage. One client wanted to use his cash to build, but get a “mortgage” when finished. He signed for a construction loan, but did not take any draws against the construction loan until construction was finished. He took one draw for the entire construction loan a few days before he signed for his mortgage. This saved him from paying the interim interest on the construction loan, yet he qualified for a mortgage with lower interest rates. A home equity loan may be deductible as a mortgage. Check this out.

Can I do some of the work myself and still get a mortgage?

Absolutely. As an owner builder, you have lots of choices about the construction of your new custom home. Saving $ by doing some of the labor can lower your cost, resulting in more equity, a lower mortgage, and lower monthly payments.

As you contemplate whether to DIY part of the construction, several considerations are important. First DIY can save you money but, unless you do this type of work routinely, it could cost you money in the long run. One client, an electrical engineer, decided to do the electrical wiring on his home. His day job was consuming, so he could only work during the weekends wiring his own home. It took 4 months for him to get all the rough wiring done. This delay not only cost him the additional interest on the interim construction loan, as well as additional rent on his temporary quarters, but he had to extend the due date for his construction loan, costing him other fees. While he certainly may have saved money on labor, the finance charges cost dearly. Professional electricians who specialize in new home construction know the steps to wire the home quickly.

Secondly, if you have a job that pays overtime, or could get a good paying second job, you might be $ ahead to hire a contractor to do the work you are contemplating. Say an average electrical crew is paid $25 per hour, and you are only 1/3 as fast as a professional electrician, how much are you making/saving??

Which parts of the labor can you do yourself? It depends on where you are building. Many of the BGCH homes are built on 1 or more acres, and sewage systems are not available. In all areas of Texas, depending on the type of septic system, you may not be able to buy the necessary parts, as some types of systems by law can only be sold to licensed septic contractors. If you hire anyone to do some of the work, he must be a licensed septic contractor. Exception:

State law in Texas also requires all mechanical work (electrical/plumbing/air conditioning) to be done by licensed personnel. In cities, permits must be pulled by licensed mechanical contractors and, if you are caught doing this work without a license, you will be fined and your job shut down. Outside cities, there are few state inspectors. Proceed at your own risk. Common tasks that owner builders tackle in building their own home are painting, flooring, tile and flooring, especially stained concrete flooring and luxury vinyl flooring. In addition, many clients do the cleanup during construction. You certainly can save money by DIY, but the largest savings will probably be realized by deciding to manage the construction as an owner builder. The owner builder model for new home construction is focused on managing the project, rather than doing the physical work yourself. Just make a wise decision regarding do-it-yourself labor as you build you own new home.

Can I get a VA loan to build my own new home?

Government backed Veterans Administration (VA) loans are very popular when purchasing an existing home. Service men and women have sacrificed for our country, and want to use the VA benefits they have worked so hard for. The primary benefit of the VA loan is extra low or no down payment such as $0.00 on a home purchase, whether new or used.

When it comes to building your own home on your own land, there is no such thing as a VA construction loan. New home construction loans generally come from local banks or local private lenders. Some local banks will honor veterans by reducing the down payment requirements. This can really help if you are purchasing your building site at or about the same time as you want to start construction. Owner Builders who have owned their land for some time generally don’t have down payment problems, as you will generally have equity in land. If you are purchasing your land and want to start construction immediately, a down payment will typically be required, as you have little or no equity in the land.

Shopping for owner builder construction loans can be a very frustrating experience and waste lots of your time. Most banks in Texas will tell you to find a builder who will build the home for you, and come back to them for a construction loan. Owner builders want to manage the construction process and build the new home themselves. When it comes to finding a bank who will offer an “owner builder” construction loan to a veteran, BGCH has done the shopping for you, and knows where to go to get construction loans for owner builders. Contact us for a referral to a veteran loan officer who can assist you. BGCH is an approved builder of record with 5 banks in the San Antonio area and 4 banks in the Austin area who welcome “owner-builder” interim construction loans.

If you want a VA mortgage when your new home is complete, there are a few special requirements. First the builder must be a VA approved builder. BGCH has already met VA requirements for new homes. Second, the appraisal must be completed by a VA approved appraiser. Third, the home must be treated for termites by a licensed pest control company. Typically we encourage clients to DIY termite prevention with a borate material, such as Boracare, an excellent termite preventative approved by HUD. It is one of only 2 termite preventatives that are permanent, and doing it yourself is very low cost. The product itself has very little risk of health damage to humans but is lethal to termites and ants. The VA requires the new home to be treated by a licensed pest control company, and DIY with borates does not meet that requirement. We still encourage you to treat your wood studs with Boracare. We suggest that in addition you hire a licensed pest control company to treat your new home in another way besides Boracare, to meet VA requirements.

If you are a veteran and thinking of building your own home, contact BGCH so our veteran loan officer can brief you on the procedures for building your new home with the lowest down payment possible.

What if I’m a disabled veteran who wants to build my own home in Texas?

In another post we discussed getting a VA loan to build your own home. It’s certainly possible to get a VA mortgage once you have completed your owner builder home. In Texas there is an additional benefit for veterans who are at least 30% disabled. The benefit reduces the mortgage interest rate by 0.5%. This benefit, provided by the Texas Veterans Land Board, not only lowers your monthly payment, but could save you tens of thousands of $ over the term of the mortgage. Let’s do the math, for example, on a 30 year mortgage. As of 2021, 30-year conventional mortgage rates are approximately 3%. The average BGCH budget is $529,795.00. That comes from a large number of homes with budgets in the $300-400,000 range, and several homes in the $600,000-950,000 range. For a $529,795.00 mortgage at 3% rate, the projected interest paid during the life of the mortgage is $274,314. At 2.5%, the projected interest paid will be 223,804. The monthly savings is $140.31, but the savings over the life of the mortgage is $50,510. That savings could enable you to pay off your mortgage early and have a paid-for home.

What is the financial impact of the savings as an owner builder? How much should I expect to save?

Clients tell us they save anywhere from 10-30% of the cost of the build. Most clients who get a mortgage gain at least a 20% equity in the home, as they do not have to pay private mortgage insurance (PMI), How much you save will be affected by the choices you make as you build. Many clients choose to utilize the savings in getting the upgrades that would not be affordable had they gone with a traditional custom builder.

Is construction interest deductible as mortgage interest?

In most cases, yes, up to a cap. According to the IRS, “You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it’s ready for occupancy. The 24-month period can start any time on or after the day construction begins. As a qualified home, the interest paid may qualify as deductible mortgage interest, with certain limitations.” You won’t be able to deduct the interest that a builder has to pay if you buy a home directly from a builder. That’s another reason to strongly look at building your own home on your own property.

What about drilling a well or clearing land from personal funds?

The answer to this question depends on your personal financial circumstances. In owner building, cash is king. Lenders do not care if your land is cleared or your have a well on the property. That does not impress them at all. They much prefer that you have cash in the bank. That is what impresses a lender. Remember, lenders do not think like most people. They want to make sure that you have financial resources to handle any situation that might arise during construction. That’s why we recommend that you add a contingency for emergencies to your budget. You could be seriously hurting yourself by spending cash to improve your property before signing for your construction loan. The costs of drilling a well or clearing land are usually a part of your construction loan. There are a few expenses that will need to come from your personal funds before the construction loan is finalized, such as design and construction documents, as well as the cost of an appraisal. Most other costs can be a part of your construction budget. There is an exception to all the above. If you have a large savings account, then it should not be a problem if you use part of your savings to drill a well or clear your building site. Just don’t spend all your savings on improvements to your property before you attempt to get a construction loan.

Why can’t I just go to the bank and borrow money to build my own home?

In some states you can do just that. Not in Texas. Because of the Texas Homestead Act, banks in Texas refuse to make a loan directly to someone who wants to act as the general contractor to build their own home. The homestead laws, enacted as part of the Texas constitution of 1845, were designed to protect one’s home from being seized for debts. In other words, it took rights away from bankers and gave those rights to the homeowner. The attorneys for banks in Texas insist that a third party “builder of record” be involved in the construction process in order to preserve the bank’s right to foreclose if the owner does not pay off the construction loan. BGCH serves as that builder of record. Our experience and success in guiding owners through the building process gives banks the assurance that you will succeed in building your home. Bankers are more interested in the return of their money than the return on their money.

Can I build a barn first and live in part of it while building my home?

Yes, but it’s not always wise to do so. The answer partly depends on your financial situation. If you have the cash to build an apartment in an outside building, without jeopardizing your savings for building your home, then it might be a good thing to do. Will you use it as guest quarters later? Would you have another use for the improved area? Clients who have done this generally choose very modest finishes for the apartment, as it serves as temporary quarters while the home is under construction. It all depends on your personal situation. Will your subdivision allow it? Some do; some don’t. It’s certainly a convenience to be on the property in order to manage construction. On the other hand, it might lead to micromanagement, which can be detrimental to getting your home finished. You could certainly save thousands and thousands of dollars in rent payments, and that might make it worthwhile.

Can I use a friend who is a contractor, or do I have to use BGCH contractors?

One of the great advantages of building your own home is the flexibility you gain by managing the construction. BGCH will get quotes from many contractors, but you are totally in control of who you choose to do the work. While it’s not necessarily encouraged or recommended, you could do some of the work yourself. Many clients have done so and saved thousands of dollars of construction cost.

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Webinar Description

Why this webinar? You have questions about how to get started planning to build your own custom home. How do you prepare and plan for a new affordable energy efficient custom home? How do you avoid mistakes in choosing property? What does it cost to build? How can you find financing? What should you look for in a builder? Where do you get a plan? Built Green has the answers.

Subjects to be covered:

Planning for Energy Efficiency
Gathering Ideas for a True Custom Home
Custom Home Design & Blueprints
Cost Estimating and Budgeting
Financing: Construction and Permanent
BGCH System for Saving You Money

This fast moving seminar with hundreds of pictures will give you a serious overview of the custom home design process, showing you how to save money as you design a beautiful, quality, energy efficient home

The class will be taught by Dennis Celsor