This article has quite an attention grabbing title if I must say so myself! For some it may sound too good to be true to think that you could actually build that 4,500 sq. ft. custom Tudor style home on 2 acres that you have been dreaming about for the last 10 years without needing a mint to do so! Since 1999 I have made my living crafting little to no money down financing solutions for Owner Builders and homebuyers so I think my experience qualifies me to advise on this subject.
Despite the headlines and news media reports that all talk about the death of the Little to No Down Payment loans there are still plenty of great financing deals to be had! In fact, if you were to take the medias advice you would probably sell anything related to real estate and commit yourself to renting for the rest of your life. (However we all know that would be the epitome of stupidity!)
Soap box aside, I want to take these next few moments and share a few strategies that you can use to finance and/or secure Construction Loan financing for your Custom Dream Home with Little to No Money Down! So let’s jump right into it…
3 Little to No Money Down Strategies for Securing Construction Loan Financing for your Custom Dream Home
- Look for Motivated Sellers who are willing to owner finance the lot or home site to you. When researching for potential lots to build your Custom Dream Home always keep an eye out for signs and/or sellers who will Owner Finance their property to you. Generally there are (2) reasons why people will finance property like this: a. they have not been able to sell it for whatever reason and they really need to sell at all costs b. they don’t really need the money from the proceeds (for tax purposes possibly) and would rather a monthly income stream Regardless of what their motivation is for offering and/or being willing to finance the purchase of the property, your primary concern is does the home site work for you and your family? Provided it does, you now have the workings for a Little to No Money Down deal. Before you get too excited, their willingness to Owner Finance is only step one of a multi step process because the next consideration is the price! It does you no good to have the owner finance the property but they added a premium to the price for offering the Owner Finance option. The second major consideration is whether you can negotiate a very small down payment with them! With the seller financing the deal and the negotiated lower price you are now positioned to minimize your upfront cash needed to secure your construction loan. Provided you are able to do both of these “you are now cooking with grease” as my grandmother used to say!
- Negotiate with the seller to do a subordination agreement. You know I must really like you to share this particular strategy with you as this is one of my “goldmine ace in the hole” strategies that can literally be the difference between you being able to do your deal or not! In a nutshell, this subordination agreement is a document that simply says the seller (owner of the land/lot/home site) will subordinate or allow their lien (the money you owe them for the home site) to be put in the 2nd lien position behind the construction loan. With this agreement in place, you can now use the entire value of the lot (minus the amount owed) as down payment for your construction loan! HUGE! So now, you can secure your construction loan, build your Dream Home and by the time you complete construction everyone gets paid including the landowner! I can’t restate how powerful of a technique this is especially in this buyer driven real estate market. The biggest risk to the landowner is that you won’t complete the construction of your home so it is imperative that you have a good solid reputable builder and/or construction management team in place to ensure you get the home completed without a hitch.
- Securing a good design-build firm to perform a turn key home construction job for you! I don’t mean to sound vain but these are REALLY some powerful money-saving tips that most people starting an Owner Builder Custom Dream Home project simply have no clue about whatsoever! Back to the tips. A design-build firm is kind of like a one stop shop for someone wanting to build a home. Most firms consist of a builder or construction manager who also designs and/or draws home plans or works directly with an architect and the other people needed to go from concept to execution. In essence, when you are dealing with a good design-build firm you can walk in the door with clippings from a magazine, a home brochures and some photos and leave with a set of plans that are ready to build and the team of people who will do the building for you! Now before you haul off and call every design-build firm in town there are several things to consider and know as many design-build firms can be fairly expensive so there are very specific strategies and details to properly structure your project. But for the sake of brevity, let’s focus on the little to no down payment aspect of working with these firms. So the high-level plan goes like this. You engage a design-build firm to build your Custom Dream Home and most require an up-front retainer. This retainer is based on the size and scope of your project and is a percentage of what your normal down payment would be. After retaining (hiring) the firm, provided you have found a good firm, they can literally turn key your home all the way through to execution. By turn key I mean they can handle everything from taking your ideas and photos, create plans, get them permitted and build them! A good firm will either have in-house people or affiliated relationships with (engineers, architects, surveyors and plan runners) everyone else needed so that your project could get through creation, design, permitting and to construction by meeting with one person! Awesome! Now the difference is that if you were not working with a design-build firm you would have to find and pay each of the above listed individuals for their services as they perform them which could add up to thousands of dollars, all before you even have a permit or approval to build the home!
As you can see this strategy has the potential to create HUGE savings financially and can literally eliminate a great deal of stress from the whole process of building a Custom Dream Home! Well I hope that your mind has been expanded and I trust that you really consider these strategies. I am sorry that I did not have the time or space to dig into each one of these more in-depth as each strategy deserves a full length explanation of the proper application and how to best use it. As evidenced by this article, the key to a successful Custom Dream Home build is the “team” of professionals you have working on your behalf, their experience can and will literally save you thousands and thousands of dollars!
In closing, I wish you the best on your Custom Dream Home that you hopefully finance with Little to No Down Payment!
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