Maybe you like the location, but not the home. Maybe you like the house, but not the kitchen. Maybe you like the home you live in, but want a bigger one. Use of a construction loan can help you build, rebuild, remodel or rehab any home you choose. Most work can be completed cheaper than you would think.
Heres how it works:
The loan is based on the value of your home AFTER the renovations are finished. This gives you the flexibility to make your home into more than you could with just your current home equity. During construction, the loan is a line of credit with interest-only payments due on the outstanding balance. When the renovations are complete, the loan converts to a conventional mortgage. If you need to move out while your home is being renovated, we have a "no-payment option" during the construction period to help you afford the increased housing expense.
Other great features of a Major Renovation Loan include:
A contingency reserve to cover plan changes or unforeseen circumstances. A single loan structure with only one settlement- a feature that could save you hundreds of dollars in settlement costs.
"100% financing available through down payment assistance programs" - Troy Schuricht
SITUATION:
You would like to purchase a home but one or all of the following applies to your situation:
very limited money for a down payment
marginal credit history
high debt load
FEATURES:
The Federal Housing Administration (FHA) is a division of HUD, an agency of the US Government. The FHA insures lenders such as Fairfield Mortgage against your default on a mortgage, which enables you to obtain a loan at a great rate and with only a 3% down payment. The program is available for both first-timers and repeat homeowners alike.
BENEFITS:
An FHA loan enables you to buy a home with little money down and less than perfect credit at an interest rate that is typically only .25 - .50% more than prevailing conventional mortgage rates. This loan also allows your lender to "stretch" your qualifying ratios a little more than many other types of loans.
DETAILS:
Maximum loan amount in metro Phoenix is $346,250 for a one-unit property
Mortgage Insurance (MIP) is required as follows: (Up-front = 1.5% of the loan amount and can be financed into the loan + Monthly = .5% of loan amount divided by 12)
Primary residences only
No pre-payment penalty
15 and 30 year fixed-rate loans available as well as a 1-year and 3-year adjustable rate mortgage (1% yearly and 5% lifetime caps)
Seller is required to pay these closing costs for the buyer: underwriting, doc prep, and tax service fee
100% financing available through down payment assistance programs
Down payment can come from a gift from a relative, friend, or charitable organization
Targeted credit score of 600 or higher
Very limited late payments or other derogatory credit items allowed over previous 12 months
Targeted debt ratio of 41% and lower
Excellent program for co-signing situations (still only have to put 3% down)
FHA appraiser is required to do a scaled-down inspection of condition of property
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.
How special are construction loans? In a report from Countrywide Home Loans, only 1 in 10 loan officers do more than 1 construction loan per year. So less than 10% do more than one loan per year, this makes finding a loan office that is experienced with construction loans very difficult. Like all advisor's associated with real estate, loan officers should be interviewed by potential clients. Here are a few questions that individuals seeking a construction loan should ask their future loan officer candidate:
1. How many CONSTRUCTION loans do you close PER MONTH? - Experience is everything.
2. Have you closed a loan in my neighborhood? - Knowing the local area can make or break a deal
3. Can you provide testimonials and references? - Word of mouth from someone else.
4. Do you have an on-line presence? - The Internet is a great tool for information.
5. Do you work for a Broker or Bank? If you choose to work with a loan officer at a Bank you could only have one option. Brokers on the other hand can have hundreds of options for you.
6. Are you a lead generation web site? Be-careful about on-line application for construction loans. - Most site are lead site not actual mortgage companies that specialize in construction loans. Your information is collected and SOLD.
Maricopa County, the largest county in Arizona and one of the largest county in the USA, had over 22,000 building permits issued in 2007. This estimate is provided to me by Construction Monitor, LLC. With in this 22,000 there were some quite large home built and many of them still being built. The ultra luxury home that is 10,000+ square feet can take 2 or more years.
Now here is a question that I received today; What is the largest construction loan I can do? My answer is pretty simple: there is no limit. If you want to build a $20 million mansion I can finance it. My question to you is do you have $10 million dollars to put down and can you document income enough to support such a payment. This illustration is a inflated to make a point, it is not the dollar amount that is in question, but how much money do you have to put in the project.
Simple rule in construction loans: the higher the loan amount the more money an individual needs to invest in the project.
I wish I could just write out a simple formula about how much money is needed, but because construction loans are so unique and have variables like lot equity, sweat equity (owner builders), cross collateralization and so on. It is very difficult to group everyone together.
If anyone ever has a client that needs some guidance, email (troy@cffinfo.com) me the answer to these questions and I can tell you what money they need invested into the project. In the construction industry we call this "skin in the game".
Do you own the lot?
If so, when did you buy?
What is the lot balance?
What is the lot value now?
What are the construction costs?
What is your completed appraised value?
What is your estimated credit score?
Can we fully document your income or do you need stated income loan?
With this information I can create a starting point as to loan type and capital required to close your construction loan.
Maricopa County, the largest county in Arizona and one of the largest county in the USA, had over 22,000 building permits issued in 2007. This estimate is provided to me by Construction Monitor, LLC. With in this 22,000 there were some quite large home built and many of them still being built. The ultra luxury home that is 10,000+ square feet can take 2 or more years.
Now here is a question that I received today; What is the largest construction loan I can do? My answer is pretty simple: there is no limit. If you want to build a $20 million mansion I can finance it. My question to you is do you have $10 million dollars to put down and can you document income enough to support such a payment. This illustration is a inflated to make a point, it is not the dollar amount that is in question, but how much money do you have to put in the project.
Simple rule in construction loans: the higher the loan amount the more money an individual needs to invest in the project.
I wish I could just write out a simple formula about how much money is needed, but because construction loans are so unique and have variables like lot equity, sweat equity (owner builders), cross collateralization and so on. It is very difficult to group everyone together.
If anyone ever has a client that needs some guidance, email (troy@cffinfo.com) me the answer to these questions and I can tell you what money they need invested into the project. In the construction industry we call this "skin in the game".
Do you own the lot?
If so, when did you buy?
What is the lot balance?
What is the lot value now?
What are the construction costs?
What is your completed appraised value?
What is your estimated credit score?
Can we fully document your income or do you need stated income loan?
With this information I can create a starting point as to loan type and capital required to close your construction loan.
Interest Rates are at the lowest level we have all seen a long time. Purchases and Refinancing is about to become popular again.
Despite all of the recent well reported real estate related woes, I have great news for everybody. RATES ARE DOWN! And truth be told, rates are actually way down. Rates are currently better than anything we have seen in the last 3 years, and by the time you read this, they could be at an all time low for the last 10+ years!
The reason they are so good today is really difficult to pinpoint. There are really dozens of reasons, but my market advisors are saying that these low rates are influenced from the speculation that the Fed will continue to lower prime (which is a good guess).
Here are my rates on Jan 15th. These rates assume that you qualify. Qualifying has never been easier; the streamline process has reduced the documentation and time to refinance.
30 year fixed 5.375%
15 year fixed 4.875%
5 year ARM 5.175%
5 year ARM 4.75%
Please give me a call (or email) to explore if this is a good time to refinance or purcahse. Aside from the many that will refinance during this rate spike, this is a fantastic time to purchase investment property.
Why use a Construction Loan? Building your dream home, though exciting, may present many challenges. Although you may be familiar with the traditional mortgage process, a construction loan includes additional elements of risk. In a typical construction project, the contractor will request funds when work is completed. Many times a homeowner will build their dream home without the use of financial institution funds. There are various ways to pay your contractor, many people feel they should pay cash, use a home equity line of credit from another property or cash out an investment. This presents unique challenges for the homeowner. The homeowner must manage the additional responsibility of ensuring all subcontractors and suppliers are paid in a timely fashion. The homeowner must also understand the statutory documentation requirements in their state. If the draw process is not properly managed and the contractor does not pay the subcontractors and suppliers, the homeowner may be subject to mechanics liens. To mitigate your risk throughout the fund control process, consider the benefits of a construction loan and the process. The construction process is a complicated one and the construction draw process will ensure all subcontractors and suppliers are paid so that you don't have to pay the bill twice. A construction loan is a check and balance of the funds that are dispersed throughout the build of a new home. With the help of the lender(s), inspectors and draw processing staff your funds are reasonable protected.
Understanding the Costs Involved As you begin the process of building a new home, you'll want to understand the costs associated with your construction and permanent loans. You'll also need to know when the expenses occur so that you can prepare an accurate budget.
· You can begin construction with as little as a 10% down payment or 10% equity in the total cost to acquire your lot and build your new home. If you don't own your lot, the first draw of your construction loan may be used to pay off your lot. There are instances that a borrower will not be required to have any money down.
· The interest rate on your construction loan is typically tied to the Prime Rate. You will be billed monthly for interest only, and your payments will be based on the current balance of it at the current interest rate for the previous 30 days. Borrowers can build in an interest reserve account to pay the interest payment during construction.
· When you finish building your new home, we will modify your construction loan to a permanent loan of your choice. Various options for locking in your rate are available depending on the product selected.
Total Project Costs This is the cost to complete the home and consists of soft costs, hard costs, land value, closing costs, contingency and interest reserves. Soft costs: Permit fees, engineering fees, architectural fees and other costs associated with building the home but not directly a part of the actual construction costs. Many times the borrower has already paid some of these costs. To consider these paid items as "equity," the borrower must document the cost with a bill and a canceled check or a paid receipt. Hard costs: The actual cost of construction covering all materials and labor associated with the building of the home. Typically the borrower will enter into a contract with a contractor to build the property. Like a purchase contract for an existing home, this contract will set forth the work to be done and the costs associated with that work. All contracts must be for a fixed price; "Cost Plus" contracts are not acceptable. To support this cost, we require a signed and dated copy of the contract along with a detailed Line Item Cost Breakdown prepared by the contractor. All contracts and budgets must be reviewed by, and contain terms acceptable, to standard lending guidelines. Closing Costs: Costs associated with the closing of the loan (e.g., title costs, loan fees, discount fees, inspection fees, appraisals, etc.) Contingency: In certain circumstances a reserve account will be needed to cover unforeseen cost overruns in the construction of the home. A required 5% of the hard costs will be established in the Contingency Account (Contractors may hold a reserve other than what usually required by the Lender.) Interest Reserve: At loan closing, an account is established to pay the estimated interest costs during the construction of the home. Since the borrower is only charged interest on the amount of funds disbursed, an estimate of the average disbursed amount is made. Our construction specialists will estimate that, on average, 60% of the loan amount will be disbursed during the term of the construction period. This interest reserve account is paid up front and is held to pay the interest during the time of construction.
At loan closing, an account is established to pay the estimated interest costs during the construction of the home. Since the borrower is only charged interest on the amount of funds disbursed, an estimate of the average disbursed amount is made. Your construction loan specialists will estimate that, on average, 60% of the loan amount will be disbursed during the term of the construction period. This interest reserve account is paid up front and is held to pay the interest during the time of construction. The idea of this account is to help individuals so they do not have two housing payments during the course of construction.
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.
Troy Schuricht
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.
How special are construction loans? In a report from Countrywide Home Loans, only 1 in 10 loan officers do more than 1 construction loan per year. So less than 10% do more than one loan per year, this makes finding a loan office that is experienced with construction loans very difficult. Like all advisor's associated with real estate, loan officers should be interviewed by potential clients. Here are a few questions that individuals seeking a construction loan should ask their future loan officer candidate:
;)
;)
