How To Build A House: The Ultimate OWNER BUILDER Guide!

My name is Case Robinson, and I am 26
old and I have successfully built 2 homes

As an owner-builder and right now I am
planning my third home build.

I've created this video to be the most
in-depth video on YouTube that will

actually teach you to build your own
house.

I'm going to be covering everything from
obtaining an owner-builder loan and

getting the financing you'll need to
actually designing the house, to finding

and hiring, to sub-contractors and
supplies that you'll need, to actually

building the house and actually managing
the job site.

And, then all the way to the final blue
tape walk-through and final inspection of

your completed home build.

If you are interested in building your
house,

Then you should click the link down below
and check out my digital course,

where I teach you everything you need to
know to actually take on your first build.

As long as I provide ten PDFs and
downloadable Excel sheets that will

assist you throughout your first home
build.

So, with that said, let's get into the
video.

So, the very first step in this building-
your-own-house process is figuring out

what I like to refer to as the initial
idea.

And, if you are watching this video, then
you probably already have this initial

idea appear in your head, and that is
likely one of the three options

that I am about to list.

Either you are thinking that you want to
build a house to rent,

or you're thinking you want to build a
house to sell,

or lastly, and probably the most popular,
you're thinking you want to build

a house to occupy and live in then for
your primary residence.

Building a house to rent can be building
a single family property to keep as a

rental property, long-term real estate
investment,

or secondly, you might be thinking of
building a duplex or a triplex

or a fourplex or maybe even a small scale
apartment complex,

or maybe even a big scale apartment
complex to keep as a long-term

real estate investment property.

And then, lastly, building a house to
occupy and live in for your primary

residence is obvious, you know, maybe
you're thinking you want to build a

slightly larger house than what you live
in right now with a pool.

That way, you can live there, you know,
5 to 15 years and have your family

grow into that house.

Or maybe you're like "Hey, I have all the
money in the world.

I have an unlimited budget and I'm ready
to retire and build my, you know, custom

dream home on 200 acres and wherever
that may be.

So, those are likely the three options for
your initial idea, and that is the very

first step to the building-your-own-
house process.

Just determining what that initial idea
is.

Are you going to build a house to rent,
to sell, or to live in as your primary

residence.

The second step to the building-your-own-
house process is determining your

preliminary budget for the project, and
this kind of depends on what financing

options you decide to go with on your home
building.

And, for the most part, there are two main
financing options.

The first one being cash in your own
personal resources, and then the second

one would be a construction loan of
some sort.

Cash in your own personal resources could
be considered a number of things.

One, and most importantly

cash that you have in the bank

Whether that be a checking account or a
savings account,

The second option may be a credit card of
some sort, that you think you can

utilize on the home build.

Third option might be just like
liquidating some stocks, or something

that you're investing into elsewhere.

Maybe you have a really good friend or
family member who is willing

to give you money to go out and build
your house.

Not that I know a friend that would
give me

money to go build my own house but hey

cash and your own personal resources is

essentially whatever you have directly
avaliable to you without getting

a construction loan. Right?

So, I actually built my first- two houses
using cash and credit cards,

so, I've never got a construction loan but

as of right now I'm getting one for my
next home build.

Determining your budget if you are
building with cash, and your own

personal recources, is simply a matter

of calculating how much you have and then

calculating how much you're willing to
take from that and invest into your

home build.

Whether that be you're building to rent,
or sell, or keep as your primary residence

right so thats how you determine your
preliminary budget, if you're going to

finance your home build with cash.

Now secondly, if you are considering to

build a house to rent, or to sell, and
you're interested in getting a

construction loan, then you can
probably pretty easily

obtain a commercial loan to build
that house to rent or sell.

You will notice that building a house
to rent or sell , both have in common

that you're building that project
to make money, in attempt to

make money, and that's why
commercial loans exist

So if you go in and meet with a commercial
lendor they can give you commercial loans

not based on your income situation,

instead they evaluate the project itself,

and they evaluate the deal.

If you're building a fourplex, they

evaluate all the numbers, they crunch
the numbers on the deal and they say

"This looks like a good investment, we
will give you a commercial loan

to fund your deal"

Right? And so if you're looking to build

a house to rent or sell, then you can

probably pretty easily get a commercial
loan but maybe we'll talk about that

in another video, because I'm sure most

of you people watching this video are
interested in building your own house

to occupy and live in as your primary
residence, and the most common type of

loan you will be able to get, especially

if you are considering building your own
house, as your own general contractor,

as an owner-builder, will be what's
called an 'owner-builder loan'

That is a construction to permenant loan,
with a one time close.

There are three main qualifications when

it comes to an owner-builder loan, of

course these qualifications are going to

vary from lender to lender,

but with the lender that I'm working

with currently, I'm getting my
owner-builder loan for the house that

I'm about to build, there are three main
qualifications, and they are:

A minimum of a 675 credit score

Secondly, they approve 45% debt to income
ratio

And then lastly, they require a
15% down payment.

so, the first one being credit score

that's a really easy one to check,
you've got to have a minumum of 675.

If you do not monitor your credit as of
right now, I highly reccomend you do so

you know- what are you doing with your
life if you're not checking your credit?

there are several free apps that you can
download on your handy-dandy iphone,

or whatever phone you may have, and the

most popular ones are Experian and
Credit Karma.

You can monitor your credit also through
your banking app, I'm sure if you have

something like Chase Bank or CapitalOne.

Anyways, here's Credit Karma

Credit Karma shows my credit to be
right there. 753 and 738 and then

on Experian, my credit score shows to be
771.

Yeah my credit score is not the best,

because my credit takes an absolute
beating

I applied for some kind of new credit,
seems like every 2-3 months

I'm either buying a new truck, or applying
for a new mortgage

or getting a new credit card or something
because

credit is very important, and credit
allows me to do the things that I'm doing.

So with that said,

that is the credit score qualification,

a minmum of 675 credit score, so the

second qualification that a bank is going
to require you to have in order to get

approved to obtain an owner builder loan is

having enough money is the bank to pay the
down payment for the loan.

Okay so, lets take a look at a couple easy
to understand examples, so you can figure

out how the down payment is calculated and
how it works.

Here we have a total project cost of
250,000 dollars.

Fairly cheap project, and if you look we
have two lines.

One goes to the down payment, which you
are responsible for paying.

And then on the right we have the LTC,
which stands for Loan To Cost.

So, this is going to be the loan amount.

You'll figure out, whenever you start
exploring lenders and calling around

calling banks, calling different lenders.

You can ask them, what is the loan to
cost amount that you guys allow.

Do you allow a 90% loan to cost, with a
10% down payment?

Or do you offer a 80% loan to cost?

well then of course if you have a 80% loan
to cost, then they would require a 20%

down payment.

Here in this example, well specifically
with the bank that I'm working with,

as of right now, to get my owner builder
loan, they require a 15% down payment.

So for these examples we're going to use a
15% down payment.

So 15% of 250,000 dollars is a 37,500 down
payment, and then they offer a 85%

loan to cost, which means they would lend
me 212,500 dollars for this project.

Moving on.

Next project: total project cost 500,000
dollars.

With a 15% down payment, I would have to
pay 75,000 dollar down payment

and then 85% loan to cost they would give
a 425,000 dollar loan.

Moving on.

Total project cost, say I want to build a
house, and the total project cost is going

to be 1,000,000 dollars.

They would require a 15% down payment,
which is going to be 150,000 dollars

and then, boom, over here.

85% loan to cost, they would lend 850,000
dollars.

And, im not going to go any higher then
that because whenever a number starts

getting super high, there's sometimes some
requirements and restrictions once loans

get above a certain amount.

So we'll stop there.

Hopefully that helps you understand how
down payments work, and there is a down

payment requirement, so you are going to
have enough money in the bank, to be able

to afford to make the down payment, on the loan.

And the last qualification that the bank
is going to look at, to see if you are

approved, for an owner builder loan, has a
little bit to do with what is called DTI

which stands for Debt To Income.

Debt to income ratio, specifically.

So, basically this is where the bank is
going to evaluate your income situation

and they are going to evaluate your debt
situation, and theyre going to do the math

to calculate the maximum monthly mortgage
payment that you can afford, based on the

finished house that you want to build.

Right.

It does get a little bit confusing but I
have it laid out into a very easy to

understand in real life example.

So, before I get into this real life
example, just let me say that I'm not a

banker.

Im not a loan officer.

I'm not a licensed professional lender,
whatever you want to call it.

Don't judge me on my terminology and
whatever, but I'm going to explain it and

hopefully its fairly easy to understand.

Okay, so.

This is our real life example, where we
have a, lets pretend its a single man who

lives alone.

And he wants to apply for a owner builder
loan, and see if he can get approved.

Well this fella makes 240,000 dollars in
annual income.

So, he makes 240,000 dollars a year,
pretty good.

So this is equal to 20,000 dollars per
month.

240,000 dollars per year, divided by 12
gives you 20,000 dollars per month.

Next, is lenders approve you for up to 45%
debt to income ratio.

Of course every lender is different.

Some lenders will only approve 40%, some
will approve like 48%, and then others

are all kinda in-between.

But the lender that I'm working with will
approve you for up to 45% debt to income

ratio.

So basically, what you do is you find out
the amount that they will approve you up

to based on your debt to income.

And you multiply that percentage times
your monthly income, so 45% times 20,000

is 9,000 dollars.

That is the maximum monthly payment that
you can afford per month if you don't have

any other debt.

Well, lets say that this guy has 4,000
dollars in monthly debt.

Whenever he submits his application and
they pull his credit, they're going to see

that he owes credit card payments and a
car payment, for a total of 4,000 dollars.

You know, we can pretend that this guy
currently lives in a house that he owns.

But he intends on selling that house
once his house that he wants to build is

finished.

So the bank is not going to count that
debt of the house he lives in for his

current mortgage payment.

So that's wiped out.

So, lets pretend he has a 4,000 dollar
monthly debt which is a combination of

just credit cards and the car payment.

So now we subtract the 9,000 dollars minus
his 4,000 dollars in monthly debt.

That gives us a 5,000 dollar monthly
mortgage payment, that he is approved for

on that construction loan.

Okay.

So now that we know the 5,000 dollar
monthly mortgage payment amount that he is

approved for, we can use that to find out
the total project cost that he would be

approved for, as well as the down payment
that he would be responsible for on his

construction loan.

So now I'm going to go to this website
right here which is just

mortgagecalculator.org and its a website
that we're going to use to figure out the

total project cost that he can afford as
well as his down payment so essentially

what we're going to do is we're going to
plug in these numbers on the left in this

section and we're going to try to make
them match 5,000 dollars because that's

the total monthly payment that he can
afford and then also we will see how much

his down payment will be.

Okay.

So, we'll leave this at 400,000 dollars.
The bank that I'm working with requires

15% down payment so we'll put 15% in right
there.

Next, we know that interst rates are
sitting at like 7 or 8 percent right now.

So, we'll just submit 8% interest for
right now.

Um, of course interest rates go up and
down depending on the market.

We will do a 30-year mortgage because the
bank I'm working with offers a 30-year

mortgage and I'm sure others do too. For
property tax, 10,000 dollars a year

You know, property tax rates are different
by location but around here they're

somewhere around 2%.

So lets just say 10,000 dollars PMI is
mortgage insurance.

The bank I'm working with doesn't
require mortgage insurance or they don't

make you pay mortgage insurance so we'll
put zero there and then homeowners

insurance we'll do 2,400 dollars because
I feel like that is a safe amount for

roughly a 400,000 dollar house.

Okay, so now I'm going to hit calculate
and in this deal right here to build a

total project cost home value.

This is where the
total project cost value is.

So, for this guy to build a
400,000 dollar house,

with a 15% down payment,
his monthly mortgage payment is going

to be 3,500 dollars.

Well, we know he can afford a 5,000
dollar monthly payment.

So, we're going to bump up the total
project cost from 400,000.

Let's do 575,000 dollars.

575,000 dollar total project cost,
hit calculate and this guy,

his monthly payment, on a 575,000
dollar total project cost house,

would be 4,619 dollars.

So now, we know he can go up
a little higher than that.

So let's try 650,000 dollars.

Here we are, we're very close. This is
just a preliminary budget so we

don't need it to be down to the penny.
But essentially, we have met the

5,000 dollar per month mortgage payment,
roughly 5,000 dollars.

This means this guy, in the real life
example, would be able to build a

total project cost of 650,000 dollars.

That's how much he would get approved
for with the bank, 650,000

dollars that he could use to buy a piece
of land and build a house.

And then also with a 15% down payment, he
would be responsible for paying

97,500 dollars as a down payment.

Okay? So, determining your preliminary
budget just simply allows you to

evaluate your own financials and also it
allows you to see if you can afford

the monthly payments that come along
with taking on that construction loan

and building that house as well as it
allows you to evaluate to see if

you can afford to actually make the
down payment that is required

to take on that loan.

In order to avoid wasting your own time

and the banks time