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Experience with HomeStyle Loan in Chicago
Hi everyone! I am currently in the market for land where I can build a new construction (ground-up construction).
I recently read about the HomeStyle loan on BiggerPockets and wondering if anyone in Chicago has had experience they can share?
My biggest concern is finding the right contractors. We’re just starting out so we don’t have a huge network, but think we can leverage 203kcontractors.com as a good starting place since this is a similar type of loan.
Porsha,
Homestyle is a great program fairly simple in terms of guide lines and not hard to get approved. Chicago is easy there are tons of solid GC's and builders. What we do at the bank and with most banks is either get your builder approved or we can provide you a list of the already approved builders that have built successfully under the program.
If you trying to get started the first thing is get your Pre-approval set up and start the processing. Most builders require you to provide a Pre-approval letter or Loan commitment from the bank. You will also have builders pushing you to use their lender (Do not) go down that road. Choose your bank and stick with the approval in order to not get pushed into a "Builder war" with generic incentives which are useless.
"Some" not all builders tend to use the "Builder incentive" tactic like - We will give you $20K towards closing which sounds great but when the builder is setting the market and creating its own sales to move the market it’s a scam! They offer all of these bells and whistles to sell you a grossly marked up home that they set the sale price and then knock off (Ghost funds) fake credits.
Then if they leave that area and do not build any more high priced homes guess what happens real fast. Those recently built homes start to lose value because the comparable sales surrounding them that are "Not" new builds and are selling for less causing a standstill on those new homes. No one really talks about this but they should because a lot of people get stuck buying a new fancy home and then in 12-24 months they are under water.
Again not everywhere but in a lot of places where you see a small phase of builds go up and then it’s off to another city or county.
The other thing that is not talked about much is home prices if the home price is under say $200K the builder loses interest. They tend to take the bigger builds that will make them more money. The banks include the lot of land into the construction as well but do shop for land that superseded the home price. The land cannot have more value than the home it must make sense.
Hi Porsha- a Homestyle loan will not work in this scenario. Homestyle does not allow for ground up construction only for a major rehab but also limits you to 75% of the after repaired value. I think you need to more likely look at a CTP (construction to permanent) loan and your best bet with that tends to be a local banker in your area. Homestyle will allow you to finish a “substantially” complete home but that is one that is already 90% complete. Hope this helps!
Quote from @Jason Wray:
Porsha,
Homestyle is a great program fairly simple in terms of guide lines and not hard to get approved. Chicago is easy there are tons of solid GC's and builders. What we do at the bank and with most banks is either get your builder approved or we can provide you a list of the already approved builders that have built successfully under the program.
If you trying to get started the first thing is get your Pre-approval set up and start the processing. Most builders require you to provide a Pre-approval letter or Loan commitment from the bank. You will also have builders pushing you to use their lender (Do not) go down that road. Choose your bank and stick with the approval in order to not get pushed into a "Builder war" with generic incentives which are useless.
"Some" not all builders tend to use the "Builder incentive" tactic like - We will give you $20K towards closing which sounds great but when the builder is setting the market and creating its own sales to move the market it’s a scam! They offer all of these bells and whistles to sell you a grossly marked up home that they set the sale price and then knock off (Ghost funds) fake credits.
Then if they leave that area and do not build any more high priced homes guess what happens real fast. Those recently built homes start to lose value because the comparable sales surrounding them that are "Not" new builds and are selling for less causing a standstill on those new homes. No one really talks about this but they should because a lot of people get stuck buying a new fancy home and then in 12-24 months they are under water.
Again not everywhere but in a lot of places where you see a small phase of builds go up and then it’s off to another city or county.
The other thing that is not talked about much is home prices if the home price is under say $200K the builder loses interest. They tend to take the bigger builds that will make them more money. The banks include the lot of land into the construction as well but do shop for land that superseded the home price. The land cannot have more value than the home it must make sense.
Thanks so much for the detailed information @Jason Wray! I'll definitely keep that in mind. Most of the current homes are valued over $400k in the area I want to build. Do you lend in Chicago? Also, who do you have recommendations for solid GC's and builders for ground-up constructions in Chicago?
Quote from @Jeff Onofrio:
Hi Porsha- a Homestyle loan will not work in this scenario. Homestyle does not allow for ground up construction only for a major rehab but also limits you to 75% of the after repaired value. I think you need to more likely look at a CTP (construction to permanent) loan and your best bet with that tends to be a local banker in your area. Homestyle will allow you to finish a “substantially” complete home but that is one that is already 90% complete. Hope this helps!
@Jeff Onofrio thanks for the information. Do you have any good recommendations for a CTP lender?
Quote from @Porsha Fross:
Quote from @Jason Wray:
Porsha,
Homestyle is a great program fairly simple in terms of guide lines and not hard to get approved. Chicago is easy there are tons of solid GC's and builders. What we do at the bank and with most banks is either get your builder approved or we can provide you a list of the already approved builders that have built successfully under the program.
If you trying to get started the first thing is get your Pre-approval set up and start the processing. Most builders require you to provide a Pre-approval letter or Loan commitment from the bank. You will also have builders pushing you to use their lender (Do not) go down that road. Choose your bank and stick with the approval in order to not get pushed into a "Builder war" with generic incentives which are useless.
"Some" not all builders tend to use the "Builder incentive" tactic like - We will give you $20K towards closing which sounds great but when the builder is setting the market and creating its own sales to move the market it’s a scam! They offer all of these bells and whistles to sell you a grossly marked up home that they set the sale price and then knock off (Ghost funds) fake credits.
Then if they leave that area and do not build any more high priced homes guess what happens real fast. Those recently built homes start to lose value because the comparable sales surrounding them that are "Not" new builds and are selling for less causing a standstill on those new homes. No one really talks about this but they should because a lot of people get stuck buying a new fancy home and then in 12-24 months they are under water.
Again not everywhere but in a lot of places where you see a small phase of builds go up and then it’s off to another city or county.
The other thing that is not talked about much is home prices if the home price is under say $200K the builder loses interest. They tend to take the bigger builds that will make them more money. The banks include the lot of land into the construction as well but do shop for land that superseded the home price. The land cannot have more value than the home it must make sense.
Thanks so much for the detailed information @Jason Wray! I'll definitely keep that in mind. Most of the current homes are valued over $400k in the area I want to build. Do you lend in Chicago? Also, who do you have recommendations for solid GC's and builders for ground-up constructions in Chicago?
I do and we use a list of already approved builders who have completed builds with no issues and are reliable.
Hi @Porsha Fross - We have many clients who use the homestyle and FHA 203k loan programs. Both programs are document intensive, but if you have a team that understands the programs and requirements, if executed properly those loan programs are amazing!
Where in Chicago are you thinking about ground-up construction?
-
Contractor IL (#TGC116360)
- Quality Builders
- http://qualitybuilders.com
- [email protected]
Hey @Porsha Fross 👋🏽
It sounds like you might be looking for a construction loan rather than a rehab loan - I've done a 203k loan and I will highly recommend that you get quotes from multiple general contractors and make sure that they've done 203k's before and if not, make sure they understand what is required. You should also have your lender help you understand what the loan entails. I changed my scope of work multiple times and initially didn't think I could and I was able to change my timeline, too. What I thought I would finish it 6 months took 1 year and part of the reasoning for that was because I changed my general contractor a few times after I purchased the property
Quote from @Eudith Vacio:
Hey @Porsha Fross 👋🏽
It sounds like you might be looking for a construction loan rather than a rehab loan - I've done a 203k loan and I will highly recommend that you get quotes from multiple general contractors and make sure that they've done 203k's before and if not, make sure they understand what is required. You should also have your lender help you understand what the loan entails. I changed my scope of work multiple times and initially didn't think I could and I was able to change my timeline, too. What I thought I would finish it 6 months took 1 year and part of the reasoning for that was because I changed my general contractor a few times after I purchased the property
@Eudith Vacio wow, it's good to know changing contractors can delay the process. Thanks for the tip! I'll definitely keep that in mind.
@Porsha Fross - yes so if you want to change contractors, I would recommend you wait until the loan closes & then change contractors!
Hi Porsha,
This will be a construction loan and not a rehab loan. You'll be required do to a minimum of 20% down. You can either pay cash for the land or finance into the build. Whichever you prefer. Like others mentioned we'll be underwriting you and the builder. Approving plans and such. My team has an inhouse building team that will help with this process.