Tips for Borrowers
Dear New Customer,
Thank you very much for considering our flexible owner builder construction loan. We would like to share a few tips with you that will help you achieve home building success!
Collect all waiver of liens. After every payment to a contractor and supplier, have them immediately sign a waiver of lien. At the end of construction, the title company which orchestrates the closing of your permanent mortgage may require evidence your construction has been fully paid for. If you are missing any, they will require you to get them, which can delay the closing for the final mortgage. We have blank forms for you to copy and use. It’s always best to have a paper trail to substantiate your payments. If you pay a laborer or materials provider in cash, promptly get a receipt evidencing such.
Prevent theft of building materials. If possible, install a gate and/or a fence at the job site. Putting up “No Trespassing” signs or “Beware of Dog” signs may also be helpful. If you have an RV, parking it at the construction site will let passersby know that the construction site is being monitored. Consider borrowing a friend’s RV if you do not own one. Parking a spare car at the construction site may have a similar effect. Even an erected tent can be useful. Don’t let your lumber company deliver lumber until your foundation is installed and the framers can start the next day. Don’t let your windows and doors be delivered until your house is framed and they can be installed the same day. Lumber and windows are most vulnerable to theft.
Almost never remit a deposit to anybody. Before anyone does any work for you, get it in writing. A good contract will contain a complete description of all materials and services to be rendered pursuant to your blue prints. Along with the agreed price, payment should be paid upon completion and approval by the local building department. With the exception of custom order items, such as windows or cabinets, no one should be paid a deposit or for services not rendered. NEVER! Once you pay someone before any work is done, you forfeit all control.
Always pay your lumber or framing materials provider directly. Never pay your building contractor, carpenter, or other third party for framing lumber. If your builder or carpenter objects, you may want to consider other contractors. Framing materials represent the single most expensive component to your building costs and failing to pay for your materials directly may mean you have to pay for them TWICE. Although it doesn’t always happen, sometimes contractors fail to remit your payment to the lumber company or use your payment to pay down lumber purchases for other projects they are working on. If this happens, the Lumber Company will place a lien on your home for the unpaid building materials. Play it safe and ALWAYS pay for the framing materials directly!
Read the fine print. Although some estimates/bids/quotes may seem to include all materials or services for a particular element of construction, they may not. Make sure you fully understand all contracts before signing. Ask your contractor, “What isn’t included in this bid that I may need?”
When in doubt, hire a professional. Many of our borrower’s believe that the more they do themselves, the more they are going to save. Unless you have significant experience in a specific trade, we highly recommend that you sub-contract this work to a professional. Errors cost time and money. Additionally, subcontractors’ work comes with a warranty, yours does not. Consider also: the time you spend doing these things is time taken away from your normal earnings. And if you can only do these things on weekends, it’s going to take even longer to complete construction. The longer construction takes the more construction loan interest and loan processing fees you will pay which can offset any potential savings from using your own labor.
Do not just hire the least expensive sub-contractor. It is important that you hire well qualified tradesmen to assist with the construction of your home. If your state licenses building trades such as plumbers, electricians, or carpenters, make sure you see evidence of a valid license. It is also wise to make sure your tradesmen carry insurance for the work they are performing. If you do not already know of some well qualified individuals or companies, ask your material suppliers for referrals. Avoid using Craigslist or similar personal advertisement media to find laborers as they are usually not licensed and not insured. Lastly, do not be afraid to ask your tradesmen for references.
Do NOT open new lines of credit during your construction loan. Applying for new credit cards, increasing your credit limit, purchasing/leasing additional vehicles, and taking out personal loans can significantly harm your prospects for refinancing your finished home. Increasing your debt load through credit will result in increased monthly payments and increase your debt-to-income ratio. Lenders look very carefully at your debt-to-income ratio and even a fraction of one percent above underwriting guidelines can result in a denial decision for your refinance. If you find that you need additional funds to complete your home, seek a loan increase from us before utilizing your higher interest rate credit cards to cover the necessary work.
Pay all monthly billing statements on time. Late payments will affect your credit score. The lower your credit score, the harder it will be to get a final mortgage at a competitive rate. Additionally, your permanent lender will inquire about your payment history with us when evaluating your application. Any missed or late payments are Red Flags for end-loan financers which may result in a denial decision, regardless of your loan-to-value ratio, or debt-to-income ratio. Interest statements are mailed out on the 16th of each month and due by the 1st of the following month.
Stay in control of your building budget. Be careful not to over spend on building materials, such as, cabinets, floor coverings, and light fixtures. Keep to your building budget. After the house is built, there will be plenty of time for upgrades. The last thing you want to happen is to run out of construction money. It is very difficult to refinance your construction loan with a partially finished home.
Read the book we gave you, “How to be your own house contractor”. This book is a MUST read. It is full of helpful tips to save you time, money, and prevent costly mistakes. If you don’t have this book, request your copy here.
We wish you good luck, and if you ever have a problem, please give us a call. We are here to help you.
Fred L. Arnold, President
Owner Builder Loans, LLC