THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, April 27, 1996 TAG: 9604250315
SECTION: REAL ESTATE WEEKLY PAGE: 04 EDITION: FINAL
SOURCE: BY JEANNE MOONEY, SPECIAL TO REAL ESTATE WEEKLY
LENGTH: Medium: 72 lines
Building your own house requires cash. The man to see about it is S. Wayne Humphreys, who has been lending money to such adventurous people for more than 10 years.
Generally speaking, owner-builders fit a profile, says Humphreys, senior vice president in the construction loan division of Commerce Bank.
Usually, people who build their own homes work construction or have relatives in that field. Or they work as firefighters. Or they work at a shipyard.
Why these career types?
Humphreys offers this: People in the construction trades have the needed knowledge to build a home or know people who do.
Firefighters work shifts and can use their days off to build. (And, says W. Carl Gilmore, a Portsmouth Fire Department battalion chief who is considering building his third home, firefighters often work the construction trades to supplement their incomes.)
And shipyard workers, well, if they can build or repair an aircraft carrier, they can build a home, Humphreys says.
Owner-builders also share some financial characteristics, Humphreys says.
Typically they will save 5 to 20 percent on the cost of their home compared to one built by a contractor.
And if they run over budget - at least seven out of 10 owner-builders do - it is, on average, by 5 to 10 percent of the orgininal loan amount.
``That's not a lot,'' says Humphreys. Owner-builders tend to spend more than builders on the finish items. The result? ``The houses are worth more,'' Humphreys says.
The typical owner-builder doesn't finish within six months; he finishes within nine.
A very cold winter didn't help this year. ``I would say you could add a month to a month and a half to the typical job because of the weather this year,'' Humphreys said.
Humphreys underwrites about five to 10 construction loans a month, he says. His customers borrow short-term, for six, nine or 12 months, at a rate equal to the prime rate plus one or two points, depending on the owner-builder's expertise. The debt is then rolled into a mortgage.
``There's a definite need in the community for that type of financing,'' he says. Not many other banks underwrite construction loans to builders who don't have Class A licenses.
How does Humphreys know? ``Because I get referrals from other banks.''
Humphreys puts prospective borrowers to work and requires they get detailed cost estimates for their projects. That allows Humphreys to do a reasonableness test and approximate the building costs per square foot. Typically it ranges between $35 and $55 per square foot, he says.
Prospective borrowers also must present a set of building plans to Humphreys, though they need not be drawn by an architect.
``If it's on the back of a Zero's (restaurant) bag, it's probably not good enough,'' he says. Most owner-builders will buy house plans or hire an architect. ``It's very rare I get a set of plans I think is unacceptable.''
Borrowers also must pre-qualify for a permanent loan. They must put down 20 percent on their construction loan. And they must get the needed insurances such as builder's risk insurance, general liability insurance, flood insurance and title insurance.
In his years lending to people who build their own homes, Humphreys remembers only two people defaulting. Neither default was related to their ability to build.
Humphreys never has lost money on a construction loan.
``If it's underwritten properly, there's very little risk,'' he says.
KEYWORDS: MAIN STORY IS ALSO ON PAGE 4.
by CNB