If you have a question that we haven’t answered, please feel free to contact us.
How does a construction loan work?
Traditionally, construction loans are done two different ways. The first option is a construction-permanent mortgage and the second option is a construction-only mortgage.
A construction-permanent mortgage is both your construction loan and long term mortgage combined into one loan, which means you only have one closing for both your construction loan and your long term permanent mortgage.
A construction-only mortgage is just that. It is a short term mortgage that provides financing for just the construction period. Your end loan (permanent long term mortgage) is taken out upon completion of your home. Your construction loan and end loan are two separate loans.
How much of a down payment am I required to have?
We will typically finance up to 95% of the cost of your new home (subject to maximum loan amount restrictions). Down payments of less than 20% will typically require Private Mortgage Insurance (PMI).
What are my payments?
Your monthly payments are interest only and are billed on a monthly basis. For a more detailed breakdown of the required monthly payments click here.
What will my interest rate be for my loan?
With a construction permanent mortgage, the rate for both your construction loan and permanent mortgage are the same and locked in for the terms and program you selected prior to your loan closing.
What will my cost be to take out a construction loan?
Closing cost on your construction loan can vary depending on a number of factors. We will review all of your options with you in detail.
Can I build my own home if I don’t have a license?
As a general rule, we DO NOT allow you to build your own home. In some cases, clients who are well qualified to construct their home and have a strong financial position may be eligible to act as their own general contractor. In order to be eligible for a self build project you must demonstrate previous experience in building a home or work in a related trade that would support your ability to successfully complete the project. Because building your own home can be more challenging, we prefer clients work with a licensed builder.
Can your programs be used to finance major remodels or even a “tear-down”?
Yes, these projects are more complex. Your cost to complete the project must be able to be supported by an appraisal. We have done a number of these transactions and the structure of your loan can vary depending on the scope of the project you are proposing.
Should we pay off our land/lot loan before we apply for a construction loan?
There is probably no reason to pay off your loan prior to the construction loan. In either case, any equity you have in the land will generally count toward the equity into your project. We will explain in detail based on your specific circumstances.
Do we need to sell our current home before building a new home?
Depending on your overall financial position, you may be required to sell your current home prior to qualifying for a construction loan. Well qualified borrowers may be eligible to finance the construction of their new home without selling their existing home prior to the start of construction. We will discuss specific options that may be available to you upon receipt of your loan application.
When do we have to make our down payment?
At the time we close on your construction loan, you will have to furnish your down payment. For example, if the home you are building costs $200,000 and you will only be financing $100,000, you will need to furnish your $100,000 down payment at the time we close your construction loan. The $100,000 down payment is held by the bank and is used to fund your builder’s draws. Once we have exhausted your funds, we will begin to fund the builder’s draw requests from your construction loan.
Can I get a construction loan for part of the project and finish the work later?
No lender will enter into a loan where the end result is an unfinished home. All items that were included as part of your plans and specifications will need to be completed. In other words, you must build a minimum of what you disclosed to us you were going to build. If you build less that what was disclosed, your loan amount will be adjusted. This may also create a serious problem with the bank and potentially a building inspector.
Can we start construction with our own funds and get a construction loan later?
All lenders require a clear title, and this situation can be thought of as a title problem. In years past this would have been acceptable. However, many title insurers will no longer insure these projects. If you have sufficient funds and can build the house for cash, you can take a mortgage out on the home upon completion. However, the title company will require evidence and waivers of lien to insure all subcontractors have been paid. If you do not have sufficient funds to build the home for cash, you must close your construction loan before you break ground on your home.
Can we use any builder?
Yes, however, we do require that your builder complete a “builder review application”. We will check for “happy homeowners” for whom the builder has completed similar projects and vendor references to insure they have a good history with the builder. While we do conduct a review of the builders qualifications, we do not warranty the builders work or their ability to complete the project according to contract terms. In the end, you as the homeowner are ultimately responsible for your builder selection and should research your builder in depth prior to executing a contract.
How many draws can my builder get and where does the money go?
You can learn more about the draw process by clicking here.
Can we pay our loan balance down at the end of our construction loan before our loan converts to our permanent mortgage?
Yes, you can. A common occurrence is that the borrowers have now sold their previous residence, and they wish to use some of these funds to pay down the construction loan prior to the loan converting over to their long term mortgage. You can make a principal payment of any amount, we will apply your payment and “re-calculate” your payment on your permanent mortgage.
If we already own our lot, can we use our lot equity for all or part of our down payment?
Yes! Provided a current appraisal of the land supports equity in your land, you may be able to count some if not all of any equity position toward your down payment.