I’m looking at the possiblity of having a house built to sell. Can someone explain how the financing work’s for new construction?
Thanks
auggflo
Howdy Auggflo:
On the house I built they loaned me 100% of the hard construction costs including the land. They did not include the interest on the loan or the closing costs or overhead or and supervision fees for myself. They paid the lot off at the closing and agreed to give draws as a certain % of the house was completed. This is variable per bank. I had to pay the inspection fee out of pocket as well. I did not have to pay interest on the money until it was actually drawn. As soon as the construction was complete I got a 30 year lender to pay off the bank.
ted gave an excellent explanation and do check out indymac. they have great terms on less common loans.
I get alot of fallout loans from indymac. I would be careful with them.
Many have come to find out what it would take to purchase some land and build their home on the land.
For custom home builders and Spec builders alike, you should be able to get:
[]No Income Verification
[]No Asset Verification[]Low fixed rates for 6-9 month construction terms
[]No reserve requirements[]New Construction only… up to $600,000 total land + cost to build[]No seasoning of tracking of funds to close[]No debt ratios calculated[]No prepayment penalties
The financing works quite simply. You find a lot. We finance the lot plus the construction at a fixed rate well below prime. Typical construction on residential properties can take anywhere between 6-9 months or less depending on how fast your builder/general contractor works.
During the construction, there are phases to be built. After each phase is built, a draw from escrow will be delivered to the general contractor/builder to continue on to the next phase.
Jason
your offering a NODOC loan on preconstruction. In your program, can the builder roll the estimated interest during construction into the loan so the buyer will not having to pay on the draws made and wait for the loan to convert.
Also what is the LTV of the loan?? Will you go off the purchase price or the appraisal value?
Andrew
Will you be working with a builder or are you going to be the GC for this project?
yrush,
For the first three months or 105 days we offer an automatic interest reserve… Anything over that would have to be requested through underwriting.
LTV depends on your middle credit score rating. 90% is possible if total loan is under $417k… As a general rule though, you may be looking at 20% down… with min 680 score
LTV goes off of purchase price ( or lot/land price ) + cost to build.
There are loans available which would allow you to borrow 100% of the cost of construction (perhaps more) and roll interest payments into the permanent loan and require no payments during construction. The final loan would have a prepay penalty. The penalty is not so stiff that if you are planning on selling the home for a profit at construction completion, you can take a smaller profit but have the benefit of 12 months or so of construction with no outlay of any cash on your part. Also closing costs can be rolled into this type of loan. It is impossible to tell you if you qualify from the information presented.
One Time Close
Program Overview
The One Time Close is a construction loan designed to provide financing to build a home or to renovate an existing home. The program is called a One Time Close because you only close once- at the beginning of the project. When the project is complete, the financing rolls over into a permanent loan with no need for a second closing.
How it works
Step 1: Find a lot to build on.
Step 2: Find a contractor/ builder who will build the home. The builder must be licensed and must be approved by the lender prior to beginning the project. Owner- builders are generally not allowed unless you are a licensed contractor.
Step 3: Builder submits plans for the construction phase.
Step 4: Builder and plans approved by the lender.
Step 5: Conference call with home buyer, builder, lender, and loan consultant, designed to explain the process and help everyone understand how to proceed.
Step 6: Land can be obtained as part of the One Time Close loan. If you already own the land, your equity in the land can serve as down payment.
Step 7: Your future home is appraised “as completed.” This value is used to determine the loan-to-value ratio (total amount borrowed vs. appraised value) upon completion of the project. In other words, if the appraiser determines that the home will be worth $250,000 when completed, but it’s only costing you $50,000 to acquire the lot and the builder is charging you $150,000 to build the home, your loan will be based on an 80% loan-to-value ratio. ($200,000 (cost of land + building home) / $250,000 (future value of home) = 80%).
Step 8: Construction begins. Builder obtains funds through draws throughout construction. Phases and draws are based upon the submitted plans.
Step 9: Depending on your feelings about the market and the advice of your loan consultant, you may lock your permanent interest rate and loan program at any time once construction begins. The lender allows a one time float-down option which will allow you to obtain a better rate within 60 days of completion of the project if the market improves. Your loan consultant can explain locking procedures in detail.
Step 10: Close on the permanent loan and move into your new home!
Benefits to the Home Buyer
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Home buyer is billed for interest only on the amount drawn to date during construction and regular payments begin only after construction is complete.
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Home buyer avoids the credit approval process when the home is completed, unless the program when the project is completed is different than the program originally approved.
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Home buyer has the choice of using the floating option or the locked option for the construction term of the program.
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Home buyer can finance up to 95% of the as completed appraised value.
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Since there is only one closing, home buyer saves the costs associated with title and appraisal fees normally associated with two closings. If impounds are required (escrow account for taxes and insurance), these funds will be collected at completion of the project to set up the escrow account.
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The loan can be paid down at completion to lower the payment or amount borrowed if the borrower chooses. Adequate funds must be verified.
Benefits to Builder
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The loan is made to the buyer, so bank credit lines remain open.
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Draw procedures are simple and help maintain cash flow during construction.
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Any interest charge that is typically calculated in the sale price of the home becomes profit.
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The loan is closed and funds for construction are immediately available. The home buyer and builder communicate draw requests with the lender throughout the process.
Hello, just wondering who this one-time close program is through?
JW