By Dan Wood And Sherry Guard
If you have always dreamed of building and living in the homeyou’ve helped design, it’s time to seriously consider puttingyour dream into action. In today’s mortgage market, a speciallydesigned loan for just such a homeowner, the construction toperm loan, includes the construction loan to build the house,and the permanent loan to purchase the home. Mortgage lendersused to offer this as a two part process, first financing theconstruction loan and building the house, then obtaining anothermortgage to purchase the home. There were two closings, and twosets of closing costs with this type of loan. Theconstruction-to-permanent loan allows for one applicationprocess, one closing, and one set of closing costs and issimpler, cost-effective, and less stressful for the applicant.Some construction to perm loans allow custom building of a homewith an adjustable low payment during the construction process.For those who may have purchased a piece of land, or intend tobuy a piece of land then build on it, this informational articlewill show you how to finance the custom built home before it’sbuilt. When choosing a lender and a builder, take the time tofind viable partners in your custom building project who shareyour vision for your dream.
Lots for Building Custom Homes It is often best to select afinished lot. This means the lot is equipped with water andsewage systems, electricity, and road access. The lot shouldalso be recognized as a single piece of land and have a boundarydesignation recorded with the county or city.
Finance Your Custom Built Home with a Mortgage Broker BreakwaterMortgage, in Virginia Beach and Williamsburg Virginia, is aMortgage Broker. Mortgage Brokers have a wider variety of loanprograms for consumers to select from. Visit a mortgage brokerfor the most competitive deals on a construction to perm loan.The lender will want to investigate if the land is appropriatefor building by reviewing the land survey and building plansfirst. They will also check to see if the contractor is on theapproved list of builders. If not, the selected builder willhave to submit an application to become one.
Select the Builder of Choice for Your Custom Built Home Many ofthe larger name builders are already approved for many lenders.Ask the lender if your builder is approved. If not, most privatebuilders and architects can easily apply through lenders. Eachlender has different criteria for builders. If the homeowner isnot satisfied with the builder they have selected, many loanprograms allow them to fire the builder and begin with anotherapproved builder. This gives the homebuyer power over their owndestiny during the custom building and construction process.
Consumer Highlights for Construction to Perm Loans Constructionto Perm Mortgages are written for primary and secondary homes.They are not allowed for investment property. Construction toPerm mortgages are not written for modular, pre-fabricated, ormanufactured homes, either. One unit is allowed per mortgage.The construction term of the loan is from six months to 12months, with exceptions up to 18 months on some products. Askyour mortgage loan officer about subordinate financing. Thereare also creative financing options available for homebuyers whowant to put the minimum down and pay a low interest only paymentwhile the house is being custom built.
Lender Requirements for Construction to Perm Financing Lendersrequire standard credit documentation and high credit scores forconstruction to perm financing. Lenders also request: 1. Finalplans and specifications (needed to obtain appraisal) 2.Purchase contract for lot (or settlement statement if alreadypurchased) 3. Property profile (a description of materials forcustom building). 4. Line item cost breakdown from the builder5. The builder’s construction contract 6. A copy of thebuilder’s license 7. The builder’s statement or application(showing the company as approved or applying to be approved tobuild a home). In addition to these documents, it is essentialthat the homeowner obtain the necessary permits to build in thecommunity.
Benefits of Construction to Perm Financing Construction to Permloans are a single close loan, and the consumer obtainsfinancing before construction. This gives the homeowner cash topay the builder and complete the construction. Construction toPerm is a fully amortized loan. Nothing changes in the term –it’s one mortgage. One of the greatest advantages to thehomebuyer with this type of home financing is some lenders allowinterest only payments while the home is under construction.This gives the homebuyer a low payment option in the beginningwhile living somewhere else. Once the home is occupied, themortgage payments are changed to principal and interest payments.
Financial Suitability for Custom Built Homes High credit scoresare important to lenders for construction to perm mortgages.Liquid assets are also carefully scrutinized. For homebuyersinterested in construction to perm financing, the lender willlook for adequate savings to pay for the mortgage during theconstruction period of the loan.
Down Payment Expect a 3-10% down payment to be required,depending upon the loan amount for the construction to permfinancing. Smaller pieces of land or smaller loan amounts willrequire a lower down payment.
From the vantage point of the loan officer, construction toperm loans are a win-win situation. The homebuyer is purchasinga loan they feel comfortable with. They have a reasonablepayment during construction, and business with the lender isconcluded at the time the loan is made. This type of loan allowsthe person building their custom dream home to take control overtheir biggest asset during the most critical phase:construction. With financing in place, the borrower can makesure the final product is exactly what they want it to be.
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