Construction loans

Home Construction loans are coming back in popularity as lenders ease the restrictions and equity requirements needed to build the new home.   The process for a construction loan is much like a regular home loan, but the lender has to approve the borrower for their credit , and then they have to approve the construction project as a whole.

Most Lenders will require paperwork from the builder such as W-9 forms, Resume of previous home-built, General Contractors license and builders insurance.  IF a borrower wants to be his own General Contractor, this is an area very few lenders want to provide since the risk is so much higher.  Managing construction projects is very time-consuming and very detailed, and if the borrower is not a General Contractor for the day-to-day work the lender is concerned it won’t be managed correctly and the money won’t be managed correctly.  Owner/Builder may be considered on a case by car basis for some lenders, while others won’t offer it at all.

What do I need?

Before the loan process starts you will need to find the land usually secure through purchase of a lot loan, or  through contract with the seller and the property can be purchase at loan closing.  This last route can take some time so make sure the seller will keep it under contract for the time needed to complete the other steps.

You will need to talk to the county and find out how the home “perks” and see how big of a home can be put on the property and how many bedrooms and bathrooms can be done.  Also you will need to find out about the “setbacks” for the property and where the home needs to be placed.  Many Counties will  require a certain buffer between homes to give enough space.

You will want to then work with an architect firm to have the home designed and a layout completed, the builder will want to see this to know exactly what they are going to be building for you.

Builder: This is where all the numbers come into play and add  the features you want on your new dream home. The builder (general Contractor) will price out what each room will cost, type of materials used even price out the different sinks for the project.

Lender:  Your lender take all of this paperwork and generally register the builder into their system and approve the property, construction fees  & cost breakdown  (to make sure they cover enough to build the home) to approve the construction process, and we will approve the borrower based on income, assets and credit.  This process can take up to 60 days to complete and once it is done we will setup the draws to given to the builder typically on a 1 time per month basis.

The builder will request draws for work that has been completed.  The lender will send an inspector to the home to check off what was done, and make sure the check list covers the materials that were listed in the Cost breakdown and contract the builder and borrower signed.  You wouldn’t want to pay the builder for cheap apartment grade fixtures and light switches when you paid for the upgraded model, nor would you want them to leave out the windows the architect has on the original plans.

Your monthly payment of the project is based upon how much is borrower each month after the new draws.  IF your end loan amount is $400,000, you won’t pay on that amount all at one time. The balance will go up after each month and your Interest only payment will increase each month.

Typically when your home is complete the loan will roll-over into a permanent loan with most lenders.

Please contact me today for more information

Bruce McLaughlin

NMLS 70081

Eagle Home Mortgage

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