Home Buliding and Interior Design

After owner builders work their way through the maze of owner builder construction loan qualifying, it will be time to close on the loan. This is essentially where you sit down and sign a huge stack of documents that you will never read, or understand if you try.

Basically, this is where the owner builder loan promises to give you the money, and you promise to repay it. Sounds simple, but it will take a hundred or so pages to accomplish it.

Owner builders are typically free to choose any closing agent to conduct the closing. In most states, owner builders can choose either an attorney or a title company to perform this function. Some states require you to use an attorney.

Once you sign all the documents, the closing agent still must record them with the county registrar, making the owner builder construction loan official. This is usually the day after your signing.

During construction, as an owner builder requests specific loan draws, the lender will most likely request the closing agent to do periodic updates of the title to make sure no liens have been filed to date.

Most good owner builder construction loans are one-time-close, construction to permanent loans. Once you are finished building, there are no more closings to convert to your permanent mortgage. At this point most lenders simply send you a final loan agreement with the final loan amount and interest rate and terms for your signature. There should be no need to go back to the closing agent again for a second round of document signing if the owner builder loan is set up properly.

Owner builder loan closing costs typically consist of three components: broker/lender fees, loan fees, and third party fees. Remember two things about closing costs when considering owner builder financing.

First, closing costs for construction loans, in general, and owner builder construction loans, especially, are going to be slightly higher than costs for a plain purchase or refinance mortgage. Accept this and shop for the loan that best fits your needs. Do not waste your time looking for an owner builder construction loan that has the same terms as the refinance loan you did two years ago. Do not try to compare apples to pineapples.

Second, just because an owner builder construction loan has slightly higher costs does not mean that it is not a great deal. Remember the big picture. You are considering being your own contractor to build the exact home of your dreams and save tens of thousands of dollars doing so.

If your research shows that you can save, for example, $65,000 by being an owner builder, is it no longer a great deal if you only save $63,000? How about $58,000? $53,000? Realize that you are still saving a ton of money while building your dream home, despite the slightly higher financing fees that come with owner builder loans.

Brokers earn their income on owner builder loans by charging origination fees for their service. This is a percentage, called “points,” of the loan amount. One point equals one percent of the loan amount. By charging an origination fee, the broker is able to give you access to a lender’s wholesale rates. The broker is also able to represent you and your best interests by offering access to a variety of loan programs.

Working directly with a lender is also occasionally an option. Direct lenders are typically compensated the same way as a broker; by charging points.

Perhaps the best option is working with an organization that has expertise in owner builder loans, that is a direct lender, and that also has the option of acting as a broker when needed. This will give you the best of both worlds while ensuring you are working with a specialist.

The number of points you should expect to pay will vary by loan program and lender. For very specialized loans such as owner builder construction loans, it is common to pay approximately two to three points in total fees. This is a small price to pay for access to a program that will allow you to save tens of thousands of dollars while building the home of your dreams.

In addition to broker or lender fees, your loan’s closing costs will include loan fees. These fees include items such as underwriting, document preparation, draw administration, loan processing and a variety of the other small fees. For a construction to permanent loan (remember you are getting two closings in one), expect to pay approximately a half to one percent of your loan amount in total for these fees. Most of these fees are fixed amounts, so the percentage will be higher for lower loan amounts.

The third component of your owner builder closing costs are made up of things the lender or broker has no control over, hence the name “third party” fees. Third party fees are also, for the most part, not affected by the type of loan you choose. They are, however, influenced by the size of the loan. Third party fees consist of your closing agent’s fees, title search and title insurance fees, recording fees to the state, county or locality and any state or local taxes. Most of these items are set by the state and local governments and are simply the price of buying or owning a home in that area.

All told, owner builders can reasonably expect to pay approximately two and a half to four percent of their construction loan amount in closing costs. Some states may have high transfer taxes, excessive title insurance fees or other high state or local fees that will increase your costs.

Overall, the total closing costs are not bad when you consider you are closing on two loans in one and being given a loan to undertake a process most lenders consider extremely risky. Plus, owner builders get to build their dream home while saving tens of thousands of dollars.

Purchasing a home is the largest cheque most people will ever sign, so making sure you have all the information at hand before making your purchase is important.  In addition to your down-payment there will be various closing costs that you will need to think about as well.  These costs can add up to quite a substantial amount of money.  But for many home buyers, especially first-time home buyers, these extra costs could be offset, at least in part, by available rebate programs.  Here are 4 home buyer rebate programs you need to know about.

Land Transfer Tax Refund for First-Time Home Buyers
Every buyer in Ontario must pay the government a land transfer tax which is based on a percentage of what the home sold for.  First-time home buyers however can apply for a rebate for and receive a rebate for all of a portion of the tax paid.  Other provinces may have similar programs available and in Ontario the maximum amount that would be refunded is $2,000.  Some cities, such as Toronto, have also implemented their own land transfer tax but this too can be refunded to eligible buyers.  That’s nothing to sneeze at.

GST Rebate For New Home Purchases
If you buy a resale home you generally do not have to pay GST on the purchase price.  Not so however if you buy a new home construction.  New homes are subject to GST on the purchase price but there is a rebate program for this as well.  In general eligible new home buyers can apply for a refund of all or a part of the GST.  Keep in mind though that some builders include the GST in the price of the new home and any GST refund would go to them since they are the ones who absorbed the GST in the first place.

Affordable Housing Program
Government is continually trying to make home ownership affordable and available to everyone and with any government program the rules can be complex.  In a nutshell the affordable housing program allows those people who qualify to apply for a government grant for the down-payment of their home.  Municipalities and provinces have different rules as to who qualifies so check with your real estate professional for more details.

Home Buyers’ Plan
For most people looking to buy their first home the monthly mortgage payments are not the issue.  Mortgage payments are usually close to what they are already paying in rent.  The biggest obstacle to buying a home is coming up with the down-payment.  If you have money in your RRSP however you can withdraw up to $20,000 tax free for the purpose of using it as your down-payment.  This money needs to be paid back to your RRSP within fifteen years and payments need to be made to it every year.

It is important to do your research and speak with your real estate professional to find out more on theses programs and which ones you will be eligible for.  Even qualifying for only one program can save you a substantial amount of money.

An energy credit is a tax credit – a payment made on the taxes you owe. A tax credit offers you a larger impact on your tax liability than a deduction because it is deducted from the tax money that is owed as opposed to deducting the money from the total liability. Home builders across the United States are eligible for a $2,000 tax credit per sold home. These credits will be doled out using the guidelines set up by the Department of Energy’s Energy Star standards for builders that can meet the standards.

Site Built Homes

New homes have to be energy efficient homes that exceed the Energy Star standards set by the new Department of Energy for energy efficiency. The Energy Star standards are a set of guidelines that were implemented in 2004 as part of an incentive to reduce energy consumption. Site built homes are eligible to receive the credit as are manufactured homes (see below). For homes that are site built they must be built in the United States and have energy efficiency ratings of at least 50% over the guidelines that are set forth in the 2004 Energy Star Regulations. Only homes that have been built after 2005 are eligible for the tax credit. At least one fifth of the energy savings must be derived from the area of the home that is heated/cooled. The homes must pass using Department of Energy software and also have to be inspected by an independent third party inspector certified by the DOE. The home has to be ready for occupancy by December 31 of the year construction began.

Manufactured Homes

Manufactured homes that are built have to have an energy efficiency rating of at least 30% over the 2004 Energy Star guidelines; the available tax credit for manufactured homes is $1000 per home. The Manufactured homes have to have been manufactured after 2005 and be certified using the same Department of Energy Software and third party inspection is also required by a certified DOE inspector as site built homes. The manufactured home has to be delivered and setup and ready for occupancy no later than December 31 of the year it was manufactured.

How Can a Home Qualify?

To qualify a building for the credit certain materials can be used. Energy efficient windows, well constructed foundations, heavily insulated attics, walls, ceilings. Using alternate energy sources can also qualify as long as the rating meets that 50% mark for site built and 30% mark for manufactured. With newer materials available today and newer technology used in building these marks are not that hard to reach.

Other Credits

The tax credit has been extended through 2016. Specific energy credits through the federal government are not available to builders of new homes yet but the credits are available to the home owner. Some states offer energy credits to new home builders for implementing solar and other alternate energy sources in new home construction, an interested party will have to check with the state that they do business in to check out the regulations.