Timing - plans for construction to permanent and purchase

6 years ago

First time poster - I searched but haven’t found anything quite on point. Thanks in advance!

We are interested in buying a home that’s been gutted by the seller and left in a condition that is not habitable, aka we can’t get a traditional mortgage for the house. The lot is amazing though and the shell of the old home has tons of potential. Our only option for what we’d like is to do a construction to permanent loan (jumbo, 20% down), but I know we need detailed plans/costs/signed contract to apply. My question is about timing — we haven’t made an offer yet on the property, but we’ve been interviewing architects and builders. The timing feels like a chicken or the egg situation - we don’t want to spend the $$ to get detailed schematics if we don’t have an accepted offer on the property, but we can’t even apply for the loan (and thus know if we can even get this property) until we have detailed schematics. It feels super tight to make an offer, draw up plans within like, 2-4 weeks, apply for the loan, and get everything appraised and approved within a standard 60 day closing. Is our only option to ask for a long closing when we put in an offer? Has anyone ever done this? Was the timeline doable? Any suggestions or comments? Thanks!

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Comments (3)

PRO
Jeffrey R. Grenz, General Contractor
6 years ago
No. IMHO this is a cash wholesale purchase since it cannot be purchased with traditional financing in a 30 day period. It may be possible to use a 203K but you need all you mentioned.

Time to talk to lenders who specialize in construction loans or 203K. It doesn't have to be construction to perm.

Wholesale means cash or possibly, hard money, private lender or short term commercial loan. Typically 50% loan to value.

Value is a question. Is it worth more than an empty lot? Some. Will it cost more to complete than the seller leads you to believe.... almost always by a long shot.

Foundation, frame, roof and windows are approx 25-30% of my latest build. Mechanical, plumbing, sprinklers, wiring, insulation, stucco sheathing and sometimes drywall take it to about 50%.

Another way to value the property is to figure finished value after completed, less your cost to complete, less 1 year of interest, taxes and carry, less another 20% for your effort. Wholesalers you are bidding against may not be as generous. You're looking at a property that most but not all flippers will pass, as most look for simpler projects, so the buyer pool will be thinner and well capitalized.
PRO
KIBV Inc.
6 years ago
Have a few ideas but have few personal questions first. PM me if you are interested to discuss options.