Construction Loans
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Generally speaking, there are 3 different types of construction loans. They are:- Spec Home
- Owner Builder
- Custom
Now some of these programs offer you a permenant option which means that after the home is completed, you can then convert the program into a 30 year mortgage.
Construction loans usually use LTV and LTC calculations when determining if you can qualify for the loan. LTV stands for Loan To Value and LTC stands for Loan To Cost. LTC is the amount that the bank will lend you based upon the total cost of the new home. For example, if you estimate that it will cost $200,000 to buy the lot and build the home, and the bank will only loan you 90% LTC, that means they will only give you $180,000 to build the home. You will have to come up with the remaining 10% in cash as well as pay for all of the closing costs.
Usually, you will get better rates and higher LTV and LTC if your applying for a Owner Builder program. But if you are planning on selling the house for a profit and NOT occupy it as your primary residence, save your self a headache and apply for a Spec Home Loan.
Most of the loan programs will allow you to include the cost of the land into the loan.
If you own land outright, it is often possible to get a construction loan with very little money out of pocket. If you own land and would like to build, then contact us today.
It is not imperative that you have great credit to get a construction loan. There are programs for construction with credit scores as low as 620.
There are now programs called construction-to-permanent loans. In these loans, once the construction is completed, at no extra cost you may choose which type of loan it is converted(i.e. 30 year fixed, 10/1 ARM, 5/1 ARM, 3 year interest only ARM, or even an Option ARM.)
If you own, but would like to build a custom home, it sometimes possible to build without much cash. You may take a loan out of your current home in order to build. This special type of bridge loan allows you to get a loan in which you make no payments until your new house is built or your old home is sold.
Construction loans are usually variable-rate loans priced at a spread to the prime rate or some other short-term interest rate. You, the contractor and the lender establish a draw schedule based on stages of construction, and interest is charged on the amount of money disbursed to date
Construction-to-permanent financing is giving you a mortgage so you can replace the construction financing that you got to fund the construction of a new residence. The transaction may be considered to be a purchase or a refinance.
Some construction loan lenders require that the builder is experienced. These lenders often ask for a list of homes the contractor has built as part of the underwriting requirement.
During the construction period of the loan draws are taken after work is completed. The borrower makes an interest only payment on the loan amount that has been used. It is also recommended to use a one time close for a couple of reasons. The two main reasons are closing costs are cheaper and if the borrower’s credit situation changes they do not have to worry about getting approved for another loan.