August 29, 2017
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 docum...
July 31, 2017
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 n...
July 30, 2017
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 p...
July 29, 2017
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 compl...
July 16, 2017
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 outcom...
July 15, 2017
Can I refinance right after construction? Yes! Since the construction loans are ARM products, many clients will refinance shortly after construction is complete to a traditional 30 year fixed rate.
Although the construction loan is for a 30 year term, the rate is not fi...
July 14, 2017
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...
July 13, 2017
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 pa...
July 11, 2017
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...
July 9, 2017
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...
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LOAN PROGRAM
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) you have on your home.
The loan is a permanent mortgage with a 30 year term (sometimes referred to as a “construction-perm” loan). There is one closing that takes place before construction begins. If you are purchasing the property, the closing would take place at the time you close on the land. There is no second closing once the project is complete.
Any down payment is required at the closing which is prior to construction beginning. As long as you stay within budget, all funds for the construction project will be pulled from the loan during the construction phase. If your budget increases during construction, you may have to make up the difference as items get paid out.
The down payment required (or equity if you already own the property) can vary widely depending on a few factors such as credit score and loan size. Smaller loans with good credit scores allow as little as 5% down (or equity) with the down payment increasing as the loan size increases and credit scores drop.
The payments on a construction loan are interest only during the construction phase based on the balance that you owe. The balance when you close will be relatively low and then as draws are taken on the loan for work complete, the balance on the loan will increase. So the interest only payment will start out relatively low as well and increase as the loan balance increases.
Once construction is complete, the loan moves into the permanent phase and the payment changes from interest only to principal and interest at the same interest rate. There is no second closing and the loan does not balloon or come due. You simply start making regular principal and interest payments.
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