Keys & Credit
The no-fluff real estate and mortgage podcast that helps you make smarter moves with confidence.
Hosted by Realtor Bill Jerikovsky and Mortgage Lender Barb Miller, this show cuts through the jargon and industry hype to bring you honest, practical insights on buying, selling, and financing homes. Whether you're a first-time buyer, seasoned investor, or just trying to decode your credit score—Bill and Barb keep it real with bite-sized episodes.
💡 Real answers. 🙅♂️ No sales pitches. 🏡 Just straight talk on homes, loans, and everything in between.
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Barb Miller NMLS ID: 329237
Guaranteed Rate, Inc. dba Rate, NMLS #2611
Bill Jerikovsky RE/MAX RESULTS
This Podcast is edited and produced by Kody Hughes - Focal Point Media
FocalPointKody@gmail.com - 320-224-9828
Keys & Credit
Spotting Lipstick on a Dumpster Fire: Your Guide to Flipped Homes
Ever walked into a freshly painted house with new carpet and granite countertops only to discover later that the foundation is crumbling and the plumbing dates back to the 1800s? That's what Barb and Bill call "lipstick on a dumpster fire" – a hastily flipped home where serious problems lurk beneath surface-level improvements.
This eye-opening episode dives deep into the world of home flips, equipping you with practical knowledge to distinguish quality renovations from polished turds. We share real stories of buyers who fell in love with doctored listing photos only to discover twisted foundations, sagging roofs, and outdated systems hidden behind fresh paint. You'll learn the critical importance of checking permits, spotting warning signs like painted-over water damage, and understanding what professionally flipped homes should include.
Beyond identifying problematic flips, we explore financing options for buyers who want to tackle renovations themselves. From FHA 203k loans to construction financing, we break down how these programs work, what requirements they involve, and how to navigate the process successfully. Whether you're considering buying a flipped property, renovating a fixer-upper, or building from scratch, this conversation provides essential insights that could save you from making a six-figure mistake.
The difference between a dream home and a money pit often comes down to knowing what's behind the walls. Share this episode with anyone house-hunting in today's market – their wallet (and sanity) will thank you.
Listening to this podcast and getting angry. It's because you f***ed me.
Speaker 2:Don't put that in there, no fluff, no nonsense. Real estate and mortgage.
Speaker 3:Let's start back.
Speaker 2:Welcome to Keys and Credit, the no fluff, no nonsense. Real estate and mortgage podcast. I'm Barb, your local lender. I am Bill, the no bullshit realtor. Today we're going to chat about Flipped homes, right?
Speaker 1:Do we got the title? What's the title?
Speaker 2:When flips are just lipstick on a dumpster fire.
Speaker 1:When flips are just lipstick on a dumpster fire.
Speaker 2:That's what we're going for right, that's what we're going for.
Speaker 1:So today this one we're going to talk about walking into flip homes, what to look for, what to pay attention to, what to be wary of right, because there's a lot of flip homes that are garbage. They were flipped by somebody who watched HGTV for three and a half minutes. They bought a house for five bucks, they put some paint on it, they put some lipstick on a dumpster fire and they're trying to sell it for a couple hundred grand and they shouldn't be. I don't think I'm wrong. There's some good ones out there, right? One of I don't think they were yours One of my clients bought a house in Cambridge. It was absolutely gorgeous, flipped by a professional, and it was fantastic.
Speaker 2:So what did they? What did they find? What was good about it? Everything compared to everything.
Speaker 1:So devil's in the details. So when you go into a flip house and you see, you walk in and you see, like we were just talking about a 1978 salmon colored bathroom, a mint green backsplash in your kitchen and then fresh paint and new carpet and they call it a flip or renovated, you're in trouble because they have done nothing. Now when you go into a house that's been flipped and you walk in and everything's been done, the trim on the doors connect correctly, you go downstairs and all the utilities have been replaced, all the major mechanicals have been updated, the roof's been done. I mean, it's actually been renovated by someone who knows what they're doing. Say a contractor, right, then you're walking into a good one, you can kind of see. But some of them you walk into and it looks like it's just a polished turd. I don't know how else to say it. They're just garbage and we see them all the time.
Speaker 1:There's these programs where people will come in and they'll convince you. They'll do these tactics, you know. They'll get you to say yes to certain things and they'll get you to sell your house to them for dirt cheap and they'll this. This would happen. A few weeks ago we were looking with one of our clients. We walk into a house uh, we weren't. We're not going to name names who bought it, but they bought it for, say, 140 grand. We walked in two weeks later. They put carpet and paint in. They're selling it for 260. What?
Speaker 1:120 000 120 grand, so they doctored the pictures. These buyers were absolutely pumped. They thought this was the one. This is our house. We walk in and you could tell the house is twisted underneath. There's still old plumbing from like the 1800s. I mean it was terrible. The roof outside was like caved. I mean their trusses were bent in. How can they doctor the pictures? It's called Photoshop, I'm pretty sure. Focal Point.
Speaker 3:Media knows how to doctor pictures. We don't do that, we don't do that Edit, delete, delete, delete. We do stretch reality, maybe like 10%, 10% is what we say.
Speaker 1:We like to stretch reality 10%, but if you doctor pictures and do all that stuff for one, there's a red flag for a bad flip. And when we walk in with buyers that have already got it stuck in their head that this is their house okay, this is the house that I want, this is the one we're going to go for it's hard to talk them out of it, even though we can see all the crap that's been overlooked, all the stuff they're going to have to fix once they buy it, everything that hasn't been done. And you on a lending side think about that. When we come in, say we do an FHA loan, we walk into a bad flip and the FHA inspector appraiser comes in and they start catching some of this crap. Now we have to get it fixed. Well, this dirt cheap flipper is probably broke. They watch their youtube or not.
Speaker 2:Gonna want to fix, they're not gonna want to fix it.
Speaker 1:They don't have the money to fix it it's just a key.
Speaker 2:I know a lot of buyers do walk in with champagne glasses on, don't they? What are champagne glasses? They just love the house they want it they like it. They love it. They can't live without it. Like it, love it, can't live without it.
Speaker 1:Like it, love it, can't live without it, but okay, so on some of the good flips. So when it comes to buyers, I don't know, looking for a house, we walk into a flip and they say, well, how do we know that this stuff's been done correctly? Okay, One of the biggest things is permits. We can go in and we can talk to the county, talk to the city, and see what permits have been pulled, if any have been pulled for the stuff that's been done. Now think about that. If you walk in and you see a wall's been moved, there's some new mechanicals downstairs, you can tell the plumbing's been redone. You go to see if permits were pulled and nothing was pulled. Who did the work? Is it even legit?
Speaker 2:I mean, is your house going to explode tomorrow? If a contractor did it, they're for surely going to pull a permit. They don't want to lose their license.
Speaker 1:Well, that's just it. So if you find a legit one, all the permits will be there. You'll be able to see it. You'll be able to see who did the work when they did the work. Sometimes you get the invoices.
Speaker 2:Most of the time the work is is going to pick things out if we're doing FHA right or USDA or VA.
Speaker 1:They're going to pick things out. So what happens if an appraiser comes in and we're in a polished turd or a lipstick dumpster fire?
Speaker 2:Well, if the moldings aren't, you know correct.
Speaker 1:The trim's connected. Yeah, that's not going to flag anything.
Speaker 2:No, but if carpet's missing, it's going to be an issue with all financing types, because we need floor covering here's one.
Speaker 1:What if it's blatant covering of, say, mold? Right, because you can't hide water In this state. You can't hide water, you can smell it, you can see it. So sometimes in these flips they'll have a basement where it's concrete block. There's it's concrete block, there's water intruding into the house and instead of getting the foundation fixed, correcting the grade, putting gutters on, whatever they need to do, they'll paint it. They paint over it and eventually this yellow stain will come through. That can usually happen within a few days. What if our appraiser sees that do?
Speaker 2:we get in trouble. Um, they, they would probably call for a foundation specialist to review it. Or um, have some someone else come in, because they're not going to.
Speaker 1:Now say that happens and the seller says you know what? I don't want to fix this correctly. Then what happens to our buyers?
Speaker 2:Right, they lose their house. They lose their house Right.
Speaker 1:Right Because this. Whoever decided to polish a turd?
Speaker 2:Well right, decided to polish a turd. Well right, because as a lender, we're always going to, you know, err, on protecting our buyer.
Speaker 1:Yep, and that is the hard part is, too, with representation, right. We always come back to representation, trying to convince someone that their house, that they absolutely love, they have it, need it, got to have it. Whatever you're saying is trying to talk them out of it. Be like, look, look, your foundation's gonna be 25 grand, your septic's gonna be 30 grand, your roof that they covered up with some shitty shingles is gonna be another 20 grand. I mean, it's hard to talk them out of it when somebody does that to you. You know, it's.
Speaker 1:So. It's kind of nice when a lender comes in and says you can't have it. We have to deal with the aftermath, right? How would you go about buying a flip house? How would you go? How would you go about buying the turd before it's polished, barb well? Or how do you go about buying a dumpster? Fire before it's on fire, or something?
Speaker 2:you mean a house that needs some renovations? Yes, I can get them a renovation loan with fha or conventional.
Speaker 1:I can get them a renovation loan so an FHA, a renovation loan, is called what 203k? 203k, it's not the price of the loan, it's the name of the loan, right?
Speaker 2:so it's possible for someone to come in and buy a flip house that needs to be flipped correct, correct, yep, um, so if you're themselves, yep, let's just say you find a house that needs renovations, but you like the house and you're up for the renovations. You could get a renovation loan, whether it's FHA or conventional, we do both right.
Speaker 1:You need to have kind of a good idea of what your renovation costs are going to be. On that part can you use and I know a guy because Cody knows a lot of people to fix stuff. Has he called?
Speaker 3:you about his house, yet I've been meaning to do that. Fucking Christ, cody.
Speaker 2:He's been busy working.
Speaker 1:When it comes to construction loans, rehab loans, can you use the people that you know or do you have to use a licensed contractor?
Speaker 2:You have to use a licensed contractor, but the people you know may be a licensed contractor.
Speaker 1:But you can't do stuff yourself right, correct, you can't submit a bid to do electrical for $20 and have it approved by a rate mortgage for your renovation loan. Correct, okay, it has to be licensed.
Speaker 2:It has to be licensed. Do you have to?
Speaker 3:approve the renovations as you're doing them.
Speaker 2:No, so you find this house it needs to have a new furnace, new roof, new flooring, yep.
Speaker 1:Because all the carpeting's gone and all the flooring's gone, sure.
Speaker 2:So you need all this.
Speaker 1:It's a house that Cody rented like 10 years ago.
Speaker 2:You see the potential.
Speaker 1:Sounds about right. You'd be surprised the shit I can retain.
Speaker 2:So you see the potential. You need a new furnace, you need new flooring and you need a new roof. So all of this you have an idea of. Well, okay, that's probably going to cost me about I don't know 30 grand, let's say so. You're like you know what I could do this. So you get pre-approved for the 203k loan. You then make an offer on the house. Your house is accepted, your offer is accepted. I should say the house is listed for $200,000. You offer $200,000. Your renovation cost is 30 grand. You're going to, if there's no structural changes, you don't need to necessarily have a HUD consultant out there, right, but you should have an inspection. We're always going to encourage you to have an inspection, and then you'd hire a licensed contractor to come out and give you a bid to find out is it really 30 grand or is it really 50?
Speaker 1:And you need to make sure correct me if I'm wrong but you need to make sure that the improvements will add to the value. Correct, so your loan to value is correct. Correct, Right.
Speaker 2:So you're going to have your contractor out there? Yep, they're going to give you a bid, yep. Okay, you've already got your purchase contract. You're buying it for $200,000. Your renovations are $30,000.
Speaker 1:You got your bid, we order an appraisal and it's going to be subject to the completion of the project, so they're going to give us a value of the home after the project's all completed. The appraiser is going to use the improvements that are going to be done to find the final value. After all. The improvements are done, correct, so let's say this.
Speaker 3:Let's say I do roofing for a living, but I work for a company. I'm not a licensed contractor myself. And I tell you I get approved for a 203k loan and I tell you, I'm going to go through this company. I end up just doing it myself because I can get the material through work for cost. I do it myself, it's all done. And then what Barb was going to kick your ass.
Speaker 1:And then what, what happens?
Speaker 3:Potentially does the loan fall through. You don't get the house anymore. How does that work? Because you've already got the house, You've already done the work. What is the repercussion?
Speaker 3:Well, so the contractor is going to sign a contract saying I'm doing all of this stuff, so let's say I'm good bunnies with the owner of my company that I work for and he signed off on it, but I did it myself and now he let's say in this meantime I get fired, so now I'm no longer good buddies with this company. The work is done. There's no certificate from a contractor. What happens?
Speaker 1:That money's coming out of your pocket Not necessarily a scenario that you have done or you will do.
Speaker 3:But what? What in that scenario? Obviously it's not ideal and it doesn't happen often, but what is that scenario?
Speaker 1:It's coming out of your pocket. Bullshit aside, you're paying for it.
Speaker 3:Well so do you have to now hire someone else to come and do the certification and sign off on the work in order to make it legit.
Speaker 1:So let's run through. So there could be. Maybe you could have a different roofing company come in and inspect it, maybe, maybe, you could have a different roofing company come in and inspect it, maybe?
Speaker 2:Well, so the appraiser is going to come back in and they're going to do a final inspection and confirm the roof's done. Okay, now should we be doing that? Because we really kind of are now lying right, because we said that this contractor was going to do it, but yet you have the experience of being the roofer. So I wouldn't suggest it. I'd probably wait for your project to be done and then maybe not be friends with our roofing company.
Speaker 3:Could your loan go into foreclosure? No?
Speaker 2:because you fixed it.
Speaker 3:Okay.
Speaker 2:There'll be a solution.
Speaker 2:There's going to be a way to go around it, so for example, I had a renovation loan up in Duluth and they hired a contractor. The contractor said it was XYZ dollars. The scope of the work got much more than what he had bid. He got frustrated and said you know what? I'm not doing this? He brought his money back, plopped it on their table and said I'm out. So they're now. So it's kind of similar to your situation, right, because they need to have these renovations done, because renovation loans, I mean we don't give you like years to do this. This isn't like a DIY you know, five years, no problem.
Speaker 2:Nope, you got like six months. We'll give you a little leeway. Like it's winter in Minnesota and you need to side the house and it's negative 30, cool, no, don't put up your siding, it's gonna crack. Wait till may, that's fine, we'll extend it, but it needs to be done in a reasonable period of time. Reasonable period of time. We give you six months. You could probably extend it to a year, okay, because of weather here. Um, so this particular case she that she, they, her and her husband had to find another contractor right and then say, okay, it's this much money. And then, so now she got this money back from this contractor that she had given him the money to do the repairs, and he came and plopped it on her table and said I'm out, she had to send that back to guaranteed rate. They put it back in the escrow fund and then they hired a new contractor.
Speaker 1:So there's a solution. There's always a solution. So any I mean, that's what we are. We're full-time problem solvers. So say, you decided you wanted to be a dick and you're going to go roof your own house, burn the world down. Who cares? I'm going to do what I want, we'll figure something out. Worst case scenario you're going to have to buy our money from your mom, cover whatever, but rate mortgage they want to finance your house.
Speaker 1:They want to make their interest off your house. There'll be a solution, but do not, for the love of God go out and roof your own damn house when you're under a renovation or a flip-pipe loan, because that's the problem.
Speaker 2:A lot of people will come in and say, oh my gosh, I want to buy this house. I'm super handy, I've watched all these.
Speaker 1:DIY shows, which is great. If you got cash, go buy your house with cash. If you got a conventional loan, go do it and you can renovate it as you're done.
Speaker 2:I've watched all of these shows on DIY TV right, and I want to renovate and I want to do this, and I want to do this and I want to do my own bathroom. Well then, don't have the bathroom renovation If your bathroom is fine, those ones turn into polished turds If your bathroom is fine, and it would pass.
Speaker 2:Just do the bathroom on your own. Don't include it in your scope of work for your renovation. Yeah, so if your roof is fine, to answer back to the roof. If your roof is really fine and there still is economic life in it, but you know you want to replace the roof, well, maybe, but it isn't called out on your appraisal. And the roof is fine, but you want to replace it, maybe do that outside of your loan, right, get the loan first, yeah, and then replace your roof, pull a permit.
Speaker 3:Good to know.
Speaker 1:Or maybe just call people and say hey, can I do this? And when we say no, don't do it, just don't fucking do it.
Speaker 2:So back to renovation loans. People will call me and say, hey, I really want to do this. I want 30 000 to renovate this home. Unfortunately, because we are giving you additional money, um, and setting it aside in escrow for you to be able to renovate this home, we're going to want an uninterested party doing it, a third party doing it, so we can be assured that it's going to be completed.
Speaker 1:Yeah because what people forget too when it comes to lending and mortgage and all that stuff rate mortgage owns your house Right, you give rate the mortgage, Right, okay, they don't give you a mortgage. The way it goes you give them a mortgage and they are this entity behind you. They're the owner and they want to make sure their investment is going to stay an investment and not a piece of shit or a dumpster fire. People forget that. Well, I own the house. It's like you own, sure, on title, but they're the ones that bought it. They're going to make sure that you're doing stuff correctly.
Speaker 2:I want to remind people as a lender um and as a homeowner, we encourage you to make renovations to your home, but if you're having to, borrow thousands of dollars and we are put. We're putting it aside for you. There's a requirement fannie mae, freddie mac, they require fha, that it's done by a license, totally, and they're taking the risk on it.
Speaker 3:Yeah, that's at that point.
Speaker 2:You're not really taking much of a risk because if, if, if we gave you 30,000 I mean, let's be real, both husband and wife work 40 hours a week how are you gonna get? This done within six months seriously because there's not enough extra time and that's why we say get a contractor. This is what they do day in and day out.
Speaker 1:That's where the flip stuff comes in, because these people think they can do it, and then they get in over their heads. They don't have enough money to hire somebody to do it, and then they try and sell it. They'll say, oh, spend the last $400 we have on paint, paint it and sell it for a gazillion dollars. And then we're in there picking. Let's get to construction loans. Okay, so a construction loan. Can you do a construction loan on a manufactured house that's on land?
Speaker 2:Yeah.
Speaker 1:Yes, you can. Good to know, good to know. I'm asking for a friend here. So, when it comes to construction loans, if you're using the I know a guy process, okay, you just have to make sure they're licensed contractors. Right, right, right process.
Speaker 3:Okay, you just have to make sure they're licensed contractors. Right, Right, Right. Does it matter what the service costs If it is an unreasonably low amount? Let's say I have a body who does septic systems that owes me a favor and you look, okay, I was going to say it comes in at like five grand instead of 10.
Speaker 1:Yeah exactly.
Speaker 3:If it's like, well, okay, this, it doesn't add up, would that throw any red flags? Yeah, no of ten.
Speaker 2:Yeah, exactly, if it's like, okay, this doesn't add up, would that throw any red flags? Yeah?
Speaker 1:No, okay, that's fine, that's fine. So when it comes to that stuff too, it's inspected, so what?
Speaker 3:rates. Are rate modders going to look for?
Speaker 1:They're going to look for for one, that it's guaranteed, guaranteed, warrantied by whoever put it in.
Speaker 3:Right. So they don't care what it costs, they just want to make sure it was done right, correct, because that's the risk.
Speaker 2:Yeah, is that it was done? Sloppy, correct, and we're going to get a compliance certificate, right, right.
Speaker 3:So that's fine. Good to know Our friend will be very happy with this information.
Speaker 1:That goes with pretty much anything. So if the friend we're talking about say he, he wants to do be a general himself, so he's going to get construction loan and he wants to hire out all these people, it's fine, as long as they're all licensed contractors, right? He doesn't have to pay himself. He can just line all this stuff up for himself, get it done and then, when it comes to the construction loan, do you like, lock in the rate all the way to?
Speaker 2:the end. Oh yeah, we can lock in in a year.
Speaker 1:In a year. Okay, so the rates right now would be the same in a year, because we have to refinance once the construction is done? Correct.
Speaker 2:Okay.
Speaker 1:Lay it out for me, lay it out, let's hear it All right.
Speaker 2:You can get a construction loan and it's interest only throughout the construction process.
Speaker 1:Interest only payment, mm-hmm Okay.
Speaker 2:Of the amount you borrowed to take out for the construction loan to build your home and do your well and septic and land. So construction loans, you're going to need 10% equity Mm-hmm. So we can do a construction loan where you're buying the land and constructing the new home 10% equity or 10% down, 10% down, okay.
Speaker 2:So, all right, let's use a scenario. I'm a big scenario. Okay, the land is $100,000. Okay, to build the house you want, it's $300,000. Now we're at $400,000. Okay, okay, within that, $300,000 is the well and subject too. Okay, so your all-in costs $400,000. Okay, you're going to need 10% down, so $40,000. Okay, okay, we're going to need to get an appraisal done that is subject to the completion of the home. If the appraisal comes in at $440,000, right, yep, so you got $40,000 over. You only need 10% down off that $440,000. So you can use part of that appraised value towards your down. See what I'm saying.
Speaker 1:No, that doesn't make any sense to me. So you start off at $400,000, 10% down.
Speaker 2:You're all in as $40,000,. Right, okay, you're all in as $40,000.
Speaker 1:You're appraised at $440,000. Wouldn't it be another $4,000? Wouldn't it be another $4,000?
Speaker 2:No, because you're appraised at $440,000? No, you can use that equity.
Speaker 1:So you've already got the $40,000. So it knocks it down to $360,000.
Speaker 2:no, I'm so confused well, how do you use the equity back up? Can I get the chalkboard back it?
Speaker 1:up, back it up, back it up, back it up okay, so our loans for 400 grand. We're gonna put 10 down. Yeah, 40 grand, right, but you've already gotten 40 40 000 equity because you got a value of 440 right so so really you only need four grand so again you got a 440, so they're not going to go off the final value and make you pay another.
Speaker 2:No, they are going to go off the final value. They're going to use that $40,000 that you have in additional equity from your all-in costs as part of your down. So really, if you have a $440 value, you're going to only need $4,000 down.
Speaker 1:Oh, see what I'm saying. I see what you're saying. See, this is why Barbara's good at what she does. Yep, so if you do this right, so if he put 40 grand down and that scenario happens, he gets money back.
Speaker 2:Right your loan to value is lower.
Speaker 1:Loan to value is lower, so you don't get money back.
Speaker 2:No, but you have to put less down but if you already put it down, that's fine well could be.
Speaker 1:We'll talk numbers later this is all for a friend, just so he knows how the process goes but anyways, long story short it's asking for a friend because we can't name names on this podcast, because we don't like to name names or look at the producer as we're talking about them but did you understand where I was going with that?
Speaker 2:values for 40, you've got that. So thousand equity because of the value, you don't have to put that. You don't have to keep driving the post down.
Speaker 1:It's good we got it. So if barb will kick my ass If say we have that $300,000 to build the house, so the guy I keep pointing at him, the guy we're talking about that, needs this. He gets a septic done and he needs $10,000. He pulls a draw. Yeah Right, Pay that guy.
Speaker 2:Moving on Does the friend own the property or are they buying?
Speaker 1:the property. No, they have to buy the whole thing. The whole thing is being bought.
Speaker 2:So the construction loan would assist then with buying the land and then constructing the new home. So what one would do? They'd go under contract on the land they're buying, they'd make an offer for it, they would get the cost of building whatever they're building. So we know what that is. We're going to get an appraisal done, substitute the completion. We're going to find out what that value is, determine what their 10 down is right. Then we're going to go to closing. We're going to set up an escrow account, right, and so that will be funded and in an escrow uh-huh and done and then he yep.
Speaker 1:So the person we're talking about closing.
Speaker 2:the first draw is going to pay the land owner that they're buying the land from, and probably permit costs. Okay, right, yep. Then there's going to be a second draw halfway throughout the process. It's going to pay the builder and it's going to be. You know, there's going to be draws. So three draws throughout that process, say this was a manufactured home.
Speaker 1:Would you just send it right to the manufacturer? Then Correct Okay, so they'd send you the bill for whatever upgrades and creature comforts that your second half may need and you can edit that out if you want this conversation that we had the guy that we're talking that might need whatever. Um, so you just send that to the manufacturer, right, and then they could complete it, send it and that part's done. Okay, all right, sorry I'm being so specific, but this is a conversation you're supposed to have with you, like two hours ago. Just say you don't have to use this, I'm just asking for you.
Speaker 2:Well, anyways, um, on stick built, you know, uh, let's go back to stick build meaning traditional home build. Um, we're gonna pay the land right at closing. We're gonna pay the permits right, because they're gonna have permitting costs. Um, in the process, though, when we were getting approved, the builder would have provided their plans and specs. Sure, their sworn construction statement, which is going to line out what each of those things?
Speaker 1:so do you need all that stuff and the builder's risk insurance? Yes, you do. Okay, so there's before you can just say, hey, this is what I want to do.
Speaker 2:You need to line everybody up not everybody, but most of the people yeah, because you're going to have you're going to have your sworn construction statement that's going to list out how much each thing's cost, so say you're missing something?
Speaker 1:does the appraiser um ask for anything? Or is it the lender that will ask for something? Say you're missing, missing. You got the land figured out, you didn't get the.
Speaker 2:The construction lender is going to say, hey, what about your septic? You don't have one here. Okay, all right. And the builder?
Speaker 1:didn't submit his insurance, they'll say, hey, you need to. Oh, yeah, you need to have builder's risk insurance. Okay, all right, so there's a process, but it's done. Say you get your home in place, your septic done, everything's done, your well's in. The guy we're talking about was the best contractor ever, saved himself hundreds of thousands of dollars. His wife thinks he's like the best dude on the planet. And then you refinance.
Speaker 2:We transition that construction loan into end loan financing.
Speaker 1:Transition.
Speaker 2:It's not refinance it's transition.
Speaker 1:It's transition. So throughout that process, does this guy we're talking about have to keep his credit and debt to income and everything the same?
Speaker 2:all the way through that 12 months yeah.
Speaker 1:Yeah.
Speaker 2:I mean you don't want to take out any new debt.
Speaker 1:Okay, so something to keep in mind too. What if, say, they have a car that might be broken and they need to replace it? Could they do that in the process, as long as it doesn't want to call your?
Speaker 2:lender and say, hey, this is what happened. I hit a deer and so I'm buying a new car and it's going to be a 300 payment. Will that work?
Speaker 1:okay, communication is key, so it's possible it's not saying that if the car breaks you're completely screwed because you're building a house. You just have to figure out what's manageable for your debt to income and what finances you're doing. Right, I retain a lot of shit. Dude, it's crazy, okay.
Speaker 2:Anyways, then when it's done yes, we take that construction loan we put in an end loan financing, usually a 30-year term. So throughout that process it's going to be interest-only payments on that construction loan.
Speaker 1:Yep, Interest-only, which is way cheaper than principal and interest. Right, right, yep, just so it saves them a little bit of money. And then, once it's done, it's done. There's no going back. It's just a regular 30-year mortgage on a piece of property and they own it and they're good, good to know.
Speaker 3:Did that help. The friend will be very happy with that information.
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