1st. I would not allow your parents to borrow against their home for a business venture. If you go broke, your parents will suffer. I don’t even borrow against my own home for business. Many a man has mortgaged their home for a business deal and lost it.
If your parents have spare investable cash and want to invest in a startup company(your rehab business), make sure you use a contract for repayment and stick to it, no matter what.
It would be better to stand on your own 2 feet in this business venture.
Construction loans are usually for 6 or 9 moonths. You draw on the loan as you pay for the construction. You pay interest on what you have drawn. If you don’t finish, most will just extend the loan.
I need to know how a couple financing situations work.
1.How do equity loans work as far as payback is concerned?
-I’m planning out using my parent’s equity in a HELOC under their name to help me start rehabbing. I’m putting a sum of cash of my own with it. If I borrow $10,000 from it, how does it get paid back? I think I heard that 20% of the principle is paid back with payments that are 80% interest. How long are they usually for?
How do constrution loans work? Next year I’m going to build my own first house and would like to understand that financing situation more thoroughly.
To add to what Arlan said…your first and biggest hurdle in getting a constrution loan is going to be your track record.
You said this was your first time trying to build a house…I’d say you are going to have a difficult if not impossible task of getting a lender to take that big of a risk o a first time builder.
There are just too many things that can go wrong…soils tests, foundations, utilities, work site not fenced and protected from theft of materials and equipment, etc…without prior experience its gonna be tough.