Being prepared to apply for a mortgage can be very helpful in making the process smoother. Mortgage companies are required to “fully document” a file. Below are a few items that can ensure your loan application is not derailed, and will also limit the amount of documentation needed.
Don’t Change Jobs: Changing jobs just before or during a loan application could possibly render your new employment income unusable or delay closing until your new income can be documented.
When you change jobs, your income will change. While very few people change jobs to make less money, th...
No. It has no impact on the loan itself. It will impact how much income documentation may be needed. Because lenders are required to fully document a file, complete personal and business tax returns with profit and loss statements as well as additional items may be needed depending on how you file your tax returns.
Also keep in mind that lenders will use the income for self-employed borrowers as reported on filed tax returns over the past two years. The income calculation takes into account the income after writeoffs.
For timing purposes, occasionally people will purchase a property with cash that they will be tearing down and rebuilding or remodeling. In most cases the situation dictates they close quickly and have no time to finance the purchase. In cases like this, a client can possibly pull some of that equity back out with proof of property purchase and down payment. There may be a few more documentation items you will need to provide, but yes, it is possible.
Whether or not you pull equity back out, there is no negative impact on the loan.
Yes. The rate is locked in prior to closing and fixed during the construction period. A typical construction period is 12-18 months. Our construction loan products are ARM products fixed for a period, and amortized over 30 years.
Once construction is complete, the rate will continue to be locked at the same rate. Depending on what is the best fit for you, the rate will be fixed for three, five, seven, or ten years beginning at the time of closing.
Do I need plans and a budget for a construction loan? Yes. The appraisal on a construction loan is completed based on the plans, budget, specs and details provided to the appraiser. The more details you provide to the appraiser, the better chance for a favorable outcome. Essentially you want to give the appraiser enough information so he/she can understand how large your home will be, the total cost of the project, and the specific materials that will be used to build it.
Typically what are needed are plans, an itemized budget, and specifications:
Can I purchase and close on my new property at the same time as the construction loan? The answer is yes. However, depending on how much time you have, there can be some variables and time constraints.
When you enter into a contract to buy a home or property, you have a contractual closing date. If you don’t close on that date, you run the risk of losing the property or another outcome. Meanwhile, to obtain a construction loan for the property, you need to develop plans and a cost breakdown/budget to submit for the appraisal of the home based on your completed project. This takes ti...
Can I finance raw land or a vacant lot? The answert is yes. Raw land can be financed with a lot loan. Lot loans are slightly different than a “typical” loan or construction loan in that they have higher interest rates and may require larger down payments. The down payments may be 10-20% depending on credit scores and could have rates 1-2% higher than other loans.
If you will be using a lot loan to secure a piece of property you will build on, keep in mind that the lot loan will be paid off as part of the construction loan so the higher rate would be short lived.
We in the mortgage industry ask that same question every day. The quick answer is because we do. The longer answer is that out of the financial crises of the late 2000s the Dodd-Frank Act was created which created the Consumer Financial Protection Board (CFPB) which created a rule called the Ability to Repay (ATR).
ATR requires that all mortgage lenders fully document a borrower’s ability to repay their loan. If they fail to do so, and the borrower defaults on their loan, the borrower can sue the bank for their failure to do their due diligence. It does not matter if th...
A construction loan is a mortgage loan that is used to help finance a construction project of various types. The loan and appraisal is based on the completed project.
If you are purchasing a property that you will do the construction work on, the loan will be based on the entire project of land cost plus construction cost as well as the appraisal.
If you will be doing the work on a property you already own, the loan will be based on the completed project. The original cost of the property may or may not be a factor. Like a refinance, the construction loan will pay off any mortgage(s...