So you've been approved - congratulations! So now what type of loan should you choose for your new Tampa home? There are a lot of choices that your loan officer can describe to you, but the vast majority of our homeowners select a Construction-Permanent loan, or C-P loan. Just like the name says, a C-P loan has two components: a construction loan and a permanent loan that are rolled into one product. The construction part finances the purchase of the property, as well as the construction of the custom home. The permanent part takes over once the home is completed. The beauty of this product is that it has one closing up front, thus eliminating a lot of duplicate documents, closing expenses and fees.
The permanent part is usually not foreign to most homeowners. It's really no different from what many people have today - a 30 year fixed, 15 year fixed, ARM, etc. The options available differ from lender to lender. So it's really the construction part that needs further explanation. At closing, the lender distributes funds for the purchase of the property and the initial payment to your builder. As construction progresses, the lender will distribute payments to the builder at various stages of construction: foundation pour, shell completion, drywall install, cabinet completion and the home completion. An independent inspector hired by the lender will come out to the construction site at each of these stages to check on the home's progress so the lender can release more money to the builder. During this phase, the homeowner is making interest only monthly payments based on the amount of funds that have been distributed.
Once construction is completed and a Certificate of Occupancy is issued, the loan modifies from the construction loan to the permanent loan. At this time, the homeowner will need to provide homeowner's insurance. There are a few documents to sign at the modification, but far less than the initial closing.
So that's the summary of financing a custom home in Tampa. It may seem intimidating, but it really isn't and the C-P loan is a great product to simplify the financing of your custom home.
Jon Solomon
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