Effective Financing Scheme for Your House Building Project

Effective financing is your key to success in any endeavors—be it on business or house building. Every American is dreaming of a house that he or she can call her own. However, the problem is the money. Where he or she can find a financier for his or her house building project?

The average money needed for building a home is around $300,000. This amount includes the materials, payment for the necessary documents such as building permits and other taxes, and the payment for the worker. If you are contracting for your house building project, then automatically, you need to have the down payment so that the house building project could be started. Usually, construction firms ask for 10 to 15 percent down payment. Meaning, out of the $300,000 you need to shell out $30,000 to $45,000 just to begin your house building project.

In real estate, there is a thing called owner builder loans. You can obtain this loan from a bank, provided that you would supply them all the necessary papers such as the record of your monthly income. In this kind of loan, the down payment is waived as the bank assumes that the homeowner would have a 10 percent, at the minimum, equity in the project. This is in line of the homeowner’s participation with the house building project.

Usually, the bank assesses your monthly income, and based on this information, they will decide how much money to lend you. Some banks provide a monthly loan, which is an equivalent of your gross monthly income. Some give as much as 65 percent, depending on the policies that the bank is implementing.

How this thing works? The computation is simple: if you’re earning at least $3,000 a month, in gross (meaning without the deductions), your loan will be $1,500. Actually, the 50 percent is based on your income-to-debt ratio. In other words, the bank is providing you 50% of your monthly gross income to pay all of your obligations—the principal, PMI, insurance, taxes, interest and common fees.

However, there are some developers or construction companies that offer in-house financing. This means that the builder itself will shoulder your home building costs, including the necessary taxes and dues to the government and you will just pay them after your house is built or constructed. Most of the condominium and townhouse builders use this scheme.

On the other hand, always remember to review your loaning contract in order to get yourself out of payment troubles.

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