Obtaining New Construction Home Loans

Obtaining New Construction Home Loans

Dated: 11/30/2016

Views: 634

The basics of construction loans

Let's proceed on the assume that you're taking out an individual construction loan. Such loans, which can be tough to get without a previous banking history because of the lack of collateral (a finished home), have special guidelines and include monitoring to ensure timely completion so your repayment can begin promptly.

Construction loans are typically short term with a maximum of one year. The rates on this type of loan are higher than rates on permanent mortgage loans. To gain approval, the lender will need to see a construction timetable, detailed plans and a realistic budget, sometimes called the "story" behind the loan.

Construction of new home © chloe7992/Shutterstock.com

Once approved, the borrower will be put on a bank-draft, or draw, schedule that follows the project's construction stages and will typically be expected to make only interest payments during construction. As funds are requested, the lender will usually send someone to check on the job's progress.

Construction-to-permanent arrangement

Upon completion, which is defined by a certificate-of-occupancy issuance and full payment of contractors (and often their signatures on lien releases), the borrower's loan liability will typically roll over into a mortgage, ideally in an arrangement where the borrower pays closing costs only once. Of late, lenders have been combining the two into a single 30-year loan with one closing, called construction-to-permanent financing. Because of the bank's greater loan-to-value risks in these, I might add, be prepared to put a little more skin in the game: The lender may offer only 80 percent of project costs or even less. If you already own the land, that can serve as equity. Although, The A-Team can get you financed for 90% of the value, INCLUDING THE LOT.

Construction delays due to weather and material/labor availability are fairly common. Be sure to build some allowances for this into the construction timetable.

They're a small part of the market

Why is there so little information or competing lender offers on construction loans online? For starters, those loans represent only a very small percentage of home loans. Plus, they're a bigger risk. Hence, such financing isn't the type of thing lenders aggressively market online, So it's important to speak with an experienced agent. 


#havasuCharles    #theAteam

Follow on Twitter @cmbrown92

Subscribe on Youtube

Connect on Linkedin

Like on Facebook /charlesbrownsellsaz

Want to Advertise on this Site?

Latest Blog Posts

Hidden Malibu Community In Lake Havasu City

Have you ever driven out to to the Island and found a 5k running path?How about a Frisbee Golf Course?Wouldn't it be fun to walk across the street to eat at the Boat House?Did you know that you

Read More

Happy Labor Day

On Labor Day we celebrate the hard work that helps us achieve the American Dream.Growing up, many of us thought about our future lives with great ambition. We drew pictures of what jobs we wanted to

Read More

Benefits Of Using A Real Estate Agent To Sell Your Home

For a free instant market valuation of your home, visit Lisa.HavasuHero.com/Sell,or call me at928-486-3497.I would love to tell you about my strategy to bring you top dollar when it comes to selling

Read More

Granite Versus Quartz

Granite or quartz, do you know the difference?  Which do you prefer?  If you're not sure, this may help.A Consumer Reports comparison determined QUARTZ AS THE WINNER!   Why?

Read More