•2. Land improvements -i.e. clearing, grading, utilities, etc.
•3. Actual construction costs
•4. Finishes to the home - i.e. carpet, appliances, tile, etc.
•5. Architect or engineering fees
•6. Permits
•7. Interest Reserve account to pay your mortgage during construction
•8. Closing costs (in most cases)
A one-time-close construction loan modifies to a permanent mortgage when the home is finished. So, you can finance the initial purchase of the land plus the cost of building your new home. You pay just one set of closing costs and you are only approved once!
Rate and terms can vary, just as with a conventional loan. You get to choose what type of loan you want when your construction loan converts to permanent financing. Choose from a 3 or 5 year ARM, or even a 30 year fixed loan.
Construction loans are easier than most people think, it just takes a little more time to learn the process. In it's simplest form... you work with an architect to design the house you want, you work on the cost to build the home, you choose your land (if you don't own it already), you obtain financing like any other loan, and watch your house be built! By working with a licensed General Contractor, you will have someone to oversee the entire building process.
Most people never even consider building their own home because they are afraid of the unknown. What they also never consider, is the instant equity you get. Or the pride of building your house exactly how you want it. Sure it takes a little longer, but good things come to those who wait!
"Well my 2007 Camry is paid off and that's worth about $15,000" or "I have a dune-buggy that I paid cash for last year, can't you state that on the application?"
With guidelines tightening up in recent months, and lenders requiring more assets than ever, I find myself trading these kinds of stories with my co-workers quite often. We laugh about it of course, and then gently tell our clients that they need to sell their toys in order to count.
As funny as we find this, there is an underlying problem here that bothers me. The truth is that many, many people are living paycheck to paycheck. They don't have a "rainy day fund" or an emergency fund. They consider assets to be their cars or quads (which technically are, but if you sell your car for cash how will you get to work to earn your income?) With the economy seemingly on a downward slope, what are we in store for? Massive credit card debt? More "Payday Loans" stores? Obviously foreclosures...
I guess only time will tell, but today I caught myself wondering rather than laughing...
If you are one of the many people out there who are struggling to make the payment on your vacant lot, listen up! Obviously the market has slowed down, and lots especially aren't selling very quickly.
Have you ever considered building a house on that lot?
Or if you have, maybe it's time to get serious about it!
It's not as hard as some people think! The thought of building yourself can certainly be overwhelming, but there are many systems and people in place to simplify the process. We have multiple general contractors and owner-builder companies to choose from.
There are many advantages:
No more lot payments during construction! We can set up an interest reserve account for you to make the mortgage payments during construction - just think of the money this will free up!
It tends to be easier to sell a house than a vacant lot
You create more cash flow
Can be done with little or no money out of pocket
The cost to build is very low right now due to the slower market
You can be reimbursed for any prepaid costs paid out of pocket
Interest rates are LOW for construction loans
You gain instant equity in your home!
For many, building a house on their lot is a great solution!
ZERO DOWN! Custom Home Construction Loan & Financing
Community First Financial is excited to offer our no money down* construction loan program. This program is designed for primary and 2nd home buyers who want to put limited funds into their custom home project. This program also allows the borrower to use the FUTURE APPRAISED VALUE of the construction loan.
Construction Loan Features:
Use future appraised value
No money down
100% financing (including land)*
Closing Costs included into the loan
24 hour loan qualification through automated underwriting
No payments during construction up to 2 years (not even interest payments)*
Primary and Second Homes
Full Doc and Stated Income
Qualification Process:
Close on land and/or construction loan
Choose a lot (if you do not own a lot)
Pre-qualify for the construction loan
Choose your builder
Choose a floor plan
Create a budget
Start loan process
Why Builders love our program:
We take the guess work out of qualifying with our automated system
Borrowers do not need to sell current homes
Flexible line item draws
Easy builder approval process (no length of time in business requirement)
Why Realtors love our program:
One time close that can include the acquisition of land
Reasonable credit guidelines and great rates
Automated approval process
We use APPRAISED VALUE
Please contact Katie Marchione at Community First Financial about our ZERO DOWN construction loan program. * Certain restrictions and loan to value limitations may apply.
People often ask me why construction loans are so difficult? One would think this is a question a potential client, building their first home, or maybe a Realtor new to the construction arena would ask. Unfortunately this question I get asked most by colleagues in my profession. Loan officers, processors, and senior loan managers are just a few that are confused by construction loans.
Let me give a little insight to why construction loans are very difficult to figure out (even for those in the mortgage profession).
There are more variables to consider.
Is the land already owned? If so when was it bought, how much, and what is the value?
What are the soft construction costs?
What are the hard construction costs?
Have any items been prepaid?
Do you have a General Contractor?
Is he approved to business with the lender?
Do you have plans?
Permits?
Any work started?
Do you have working capital?
Do you need an interest reserve account?
Do you need anything refunded at close?
Do you know how many draws you need?
This list could go on and on. My point is the amount of additional work that a construction loan requires is much greater than your last purchase or refinance. Keep in mind the mortgage a typical person completes has close to 35 people touching that transaction. With a construction loan there are even more associated with your file.
If any of this has you scratching your head you are not alone. Construction loans are dominated by a few select individuals because they are a special transaction. If anyone needs any more insight to my comment please let me know.
What is the difference between "Construction-to-Permanent" and "Construction Only" loan programs?
A C/P or Construction-to-Permanent, also called "One Time Close" is a type of construction loan that rolls directly into your permanent financing once your home has received its Certificate of Occupancy. Typically, the borrower qualifies for the loan to the guidelines of the permanent loan. The borrower can select whatever end loan program that a lender may have in their portfolio (ie. 30 year fix; 3/1, 5/1, 7/1 ARMs, Interest Only, 15 year fix, etc.). The construction period is the riskiest part of the loan. Thus, lenders will charge a little more in fees to administer the loan and a higher interest rate during this period. Once the home is complete, then what has been actually used from the construction loan will convert into the principal amount of the permanent financing. Lenders who offer a CTP program typically do so because they want your permanent loan. Once the home is built, the lender now has a secured asset for their loan.
A Construction Only loan is obviously a construction loan only for the purpose to build the home. Once the home has been completed, the borrower is responsible to find a permanent loan to payoff the construction loan. In today's market, the construction only loan is mostly used by builders who build a home with the purpose to sell and owner occupied borrowers who have credit challenges.
Why would someone want to use the "Construction-to-Permanent" loan?
One set of fees. With the C/P loan, the lender will charge only one set of fees for the loan.
No worries about pre-qualifying for a permanent. When you are approved for the construction loan, you have been approved for the permanent loan.
Competitive pricing. Those lenders in the C/P market want your business. Thus, the lenders are trying their best to make their programs competitive.
Why would someone want to use the "Construction Only" loan?
Planning to sell the home during or immediately following completion. These loans are designed to be reimbursed by either a mortgage from a buyer of the home or a refinance.
Experiencing credit challenges. Typically, borrowers who have a mid-FICO (credit) score of 620 or below will not qualify for a CTP loan and must look to the Construction Only products.
You want a specialized permanent loan. Sometimes lenders who offer C/P programs do not carry the type of permanent loan that you desire. If this is the case, the borrower may have to go to another lender for the specific loan program that they desire.
If you have any further questions regarding this topic, please feel free to call us at 480-305-8900.
What are the reasons people buy resale homes over building thier own custom home?
Tangible product. They can see, smell, and touch the new home they wish to buy.
Time line. Most resale homes are available with in 45-60 days.
Inventory. Easier to find an existing home rather than a vacant lot.
Variables. Building requires: Realtor, land, builder, plans, options, time, patients, vision, trust, etc....
Education. Many customers that build homes invest more time into their "purchase" and at the same time have to educate themselves with land, building and builder.
This list can go on all day long, but the theme of the idea is HOW DO WE HELP OUR CUSTOMER FEEL MORE COMFORTABLE WITH THE CONSTRUCTION PROCESS AND THE CONSTRUCTION LOAN?
This idea is geared towards custom homes. Production builders actually do a fine job at this and custom builders and their customers can learn a lot from their presentation of information. Only if there was time, money and resources to emulate their marketing. So what can you do?
What can be done is education. If you are a builder, developer, or Realtor here are a few ideas:
Make sure that prior homes built can be used as sells tools for your future customers. I own a lot today because I walked in to a spec home that the builder was working on and fell in love with the home. The General Contractor happen to own the lot next door, now I do.
Use the web. Show case every home you have ever built. People love pictures. Remember you have no models to show case like production builders.
Choose the advisers you and your customers use carefully. Make sure your Realtor is a pro with the custom home building process, same with your loan officer, architect, and any other support. The very best advisor's have experience and know how.
Make sure your advisors are web based. Meaning, If I tell a customer AHK Contracting is great. My customer can actually go their website and get some level of comfort with their experience. I will use myself as an example too. I am a construction loan specialist. I can help you be more comfortable with this by my websites: http://www.communityfirstfinancial.com/, http://www.cffinfo.com/, http://activerain.com/katiemarchione . These websites share testimonials, credibility and education specifically on construction loans. Everything matters in the technology based society we live in. And people love to research things they do not know, especially things like construction loans.
Referrals, testimonials and past clients. Gather as many other peoples opinions, ideas, and experiences. We all love stories and we should try and share them.
Many custom home customers repeat the process, because they feel comfortable with the process, see the value , and love the feeling of building a vision.
My formula for success: EDUCATION+ADVISOR'S=COMFORT
With the Super Bowl coming here to Glendale in a few months, we have been contemplating renting out one of our investment properties and possibly our primary residence. I have been watching Craigs List recently and the prices to rent a home out here for the week are staggering!
I can't help but think that I don't want to miss out on this opportunity...
Does anyone have any experience with this? Or any tips?
Where is the best place to list your property and how can we best protect ourselves?
Any help / ideas / suggestions would be greatly appreciated!
Lately, I am hearing more and more from realtors and others that they are urging borrowers to go to their local banks for financing. They are telling them to stay away from larger banks and mortgage brokers due to unstable market conditions ( ie: subprime mess, lenders closing )
Now I may be biased, being that I work for a mortgage broker, but I am here today to tell you why you should be ENCOURAGING your borrowers to seek out mortgage brokers:
•1. We work on commission. We are committed to getting your loan done because if it doesn't close, we don't get paid. We are hungry!
•2. We have a wide range of banks to choose from (If you go to a local bank, your options are severely limited) If your loan falls out at one lender, we can easily move it to another...try that at your local bank when you are 5 days away from close of escrow.
•3. We care about you! You aren't just another face that walks in the door. We are dealing with a much smaller number of people on a daily basis. I will remember what your dog's name is ;)
•4. You can reach me today, tomorrow or next week. And it will be me every time. You won't be shuffled from one person to another.
•5. We have a broader range of knowledge (in my opinion). With all the new programs and the ever-changing guidelines, we have to educate ourselves constantly.
•6. Contrary to popular belief, most of us are extremely conscientious. We work on referrals and want to do our best for you in order to grow our business.
The bottom line is, now more than ever is the time to turn to mortgage brokers.
( EMAILWIRE.COM, October 03, 2007 ) SCOTTSDALE, Ariz. - This week, the National Association of Home Builders/Wells Fargo index of builder confidence plunged to 20, the lowest it's been since January, 1991. Foreclosures are up. Confidence is down. Buyers are waiting to buy and builders are postponing construction. The National Association of Realtors last week predicted the
housing slump would last until 2008, while Moody's Investors Service said the slump might continue into 2009.
Hardly a good time to get a new mortgage company off the ground, right? Not so, says Phillip Lechter of Community First Financial.
'While it may seem counterintuitive, it's actually a smart move to get into an industry when others are getting out,- said Lechter.
Despite the seemingly dismal market conditions, Lechter is enthusiastic about the prospects of his mortgage company. Prior to starting his new venture with partner Troy Schuricht in June 2007, Lechter served as Chief Communications Officer of the Rich Dad Company. Now, he's applying the principles he once preached at Rich Dad to propel the success his own company.
'What will really place a business above the competition is its value proposition,- said Lechter. 'It needs to be there. I am amazed at how many companies are discounting their services in a desperate attempt to attract business. If there ever was a time to ‘value up' and not ‘discount down', this is it.-
Community First Financial sees opportunity to survive and thrive in the current market by differentiating their services through financial education.
'Those who are looking to buy will be wary of locking a loan that will get them into future financial trouble, as has been the case with so many homebuyers over the last few years,- said Lechter. 'We are committed to building relationships, offering the appropriate financial education and providing investment opportunities for our customers to use what they've learned and make the right investments for the long term.-
Community First Financial has a comprehensive approach to offering financial education to both current and potential customers. First, partners Phillip Lechter and Troy Schuricht provide ongoing financial education through their blogs at http://www.philliplechter.com/ and yourlendertroy.blogspot.com. They are also developing tailored Home buying Tool Kits for teachers, emergency responders and health services employees - all groups who are having a particularly difficult time getting into a home in today's market. Additionally, the company has begun a monthly book review to help educate the public on real estate opportunities and pitfalls.
Community First Financial's next book review will be held Thursday October 18th from 11:30AM - 1:00PM at the company's offices at 7575 E. Redfield Rd, Suite 235, Scottsdale, AZ 85260. Space is limited, so seats should be reserved by calling 480-305-8900 or sending an e-mail to info@communityfirstfinancial.com. There is no charge for attendees. The book that will be covered at the October 18th meeting is Rich Dad's Real Estate Advantages: Tax and Legal Secrets of Successful Real Estate Investors by Sharon Lechter and Garrett Sutton.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
A construction loan finances the following: 
Have you ever heard this from a client? 
"Well my 2007 Camry is paid off and that's worth about $15,000" or "I have a dune-buggy that I paid cash for last year, can't you state that on the application?" 
As funny as we find this, there is an underlying problem here that bothers me. The truth is that many, many people are living paycheck to paycheck. They don't have a "rainy day fund" or an emergency fund. They consider assets to be their cars or quads (which technically are, but if you sell your car for cash how will you get to work to earn your income?) With the economy seemingly on a downward slope, what are we in store for? Massive credit card debt? More "Payday Loans" stores? Obviously foreclosures...
;)
;)
