New Home Construction Financing in the Chicagoland Area

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Mortgage and Lending with NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 IL Lic 031.0006220/WI
https://activerain.com/droplet/4pKR

 

New Home Construction Financing in the Chicagoland Area


     My wife and I were out running errands yesterday.  It was an absolutely gorgeous Fall day in Chicagoland.  We weren't alone in our effort to get out and enjoy the beautiful weather either.  The roads were busy and filled with cars. 
       
     As we drove along, we both noted the healthy spattering of new construction popping up all over.  Once a very familiar sight, new home construction in our area had come to a screeching halt during the housing crisis.

     The area in which we live, Will County, IL ... as well as the entire Chicagoland area ... had exploded with new construction during the housing boom.  According to the 2010 Census, Will County, IL saw a growth in population of almost 35% over that reported in the 2000 Census.  (That 2000 Census had reported an increase of almost 41% over the previous census.)  So it's no wonder that Will County was named the 2nd fastest growing county in the State of Illinois during that time.

     The sight of newly-framed homes, new developments, and a rising number of contractor's trucks on the highways in Chicagoland is very welcomed, as it's a sign of improving economic and housing market health.  This new construction activity brings other good things along with it too, as its brought a flurry of calls and questions regarding new construction financing.  Love it ...

     As with many things in the quickly-changing real estate industry though, the new and current construction financing doesn't completely resemble the old.  Here's some of the changes to be found ...

     Years ago, vacant lots were often times owned or purchased by the homeowner.  In this scenario, when the Individual (not a Builder or Contractor) owns a lot and chooses to build a new home on it, the typical financing route is a "6-month Construction Loan", secured by the Individual Lot Owner (Borrower) at a Bank or Mortgage Company. 

     During the construction process, the Individual/Lot Owner requests that 4 or 5 "payouts" be made.  These "payouts"  are funds from the loan that pay the Sub-Contractors for their completed work (supported by signed and notarized Contractor's Waivers).   Payouts are usually preceded by inspections (performed by the Bank or Mortgage Company's Appraiser) verifying the payout of funds requested appropriately reflects the actual work completed.

     The stages at which these "payouts" are considered, usually include completion of:

  • Excavating and Foundation
  • Rough Framing/Construction of the Residence/Garage 
  • Rough Mechanicals - Plumbing, Electrical, Heating and Air Conditioning are "Stubbed" in
  • Insulating, Drywall, Millwork (Trim, Doors, Windows)
  • Final Inspection - (100% Complete - Final Occupancy Permit)


     After completion of construction, the Homeowner seeks a permanent, or "end loan" to pay off the Construction Loan.  (Construction Loans are typically a short term, interest only type of loan ... not intended to be for a Fixed Term, such as 15, 20, or 30 years.)  The Individual/Borrower's permanent Mortgage is then based upon a "completed" value, as determined by the Mortgage Lender's Appraisal. 

     This value estimate is typically in line with the Cost or Value of the lot, PLUS the Construction Costs (Labor and Materials).  The new loan is then considered a Refinance ... and Loan-To-Value considerations are based upon the new Appraised Value.


     However ... in today's environment, MOST of the building sites in Will County, and elsewhere in the Chicagoland area, are created and owned by Developers/Builders, who market/sell their products from Model Homes.  Prospective Home Buyers contract for varying features and amenities offered in addition to the basic model chosen and semi-customize their new home according to their tastes and preferences.

     In this scenario, the Builder funds his own construction process (usually with their own banking relationships, or cash), and when the home is completed ... sells the home outright to the new Homeowner.  The Homeowner/Buyer secures traditional Mortgage financing, according to the agreed-upon Sales Price, and closes after the Final Occupancy Permit is issued and the home is complete.

     So what are your current financing options if you own your own lot in Will County or Chicagoland and wish to hire your own Contractor to construct a new home on that lot? 

     I have good news!  Another loan option exists and is  available to you in this building/financing scenario.  This loan option performs as a combination of the two forms of financing related above.  It's known as a  "Construction to Perm"  loan.  

     A "Construction to Perm" loan provides the money needed during the construction period and then converts to a permanent (End Loan) after construction is completed.  I'll be offering more information regarding this loan option ("Construction to Perm") in greater detail in an upcoming blog.  Should you have questions or have a more immediate need for information or assistance, contact me at your convenience at any of the options found below ...

    
  
     *  Hoping to Buy or Build a Home in Will County or elsewhere in the Chicagoland region?  Contact Me!  I'll put my 36 years of mortgage experience, knowledge, and expertise hard to work on your behalf.
     I can be easily found at:

Direct:  815.524.2280
Cell/Text:  708.921.6331
eFax:  815.524.2281

 Click HERE for a FREE Mortgage Consultation!

 Ready to Apply for your Mortgage?

  

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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

                                 IL Lic. #031.0006220  -  WI License #216987                                                                                                    

NMLS #175656

 

Gene Mundt, Mortgage Originator,  40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking:  #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including:  The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin. 

 

Your Referrals & Testimonials are Always Greatly Appreciated! 

 

 

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Topic:
Lending / Financial
Location:
Illinois Will County
Groups:
Mortgages
Chicago Area Real Estate BUZZ!
Bananatude
WillCounty
Tags:
construction financing
buying a lot
building a home
will county new home construction
chicagoland new home construction

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Rainmaker
1,060,712
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

Gene, once again, you've made me a little bit smarter!  I was not familiar with the term "Construction to Perm."  I'm glad you are seeing newly-framed homes in Will County.  May the trend continue.

Oct 21, 2013 03:59 AM #1
Ambassador
2,739,883
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Moat new construction in my area is with end loans.  However, buyers who are looking in rural areas, the construction to perm is popular.  Buyers who close on a lot purchase and then finance the construction separately are not unknown but rare. 

We do it all here.  Makes no difference to me. 

Oct 21, 2013 06:24 AM #2
Rainer
237,488
Jay & Michelle Lieberman
Keller Williams World Class - Agoura Hills, CA
Creating Calm in the Buying and Selling Chaos

Solid post.  I have quoted different opinions to potential clients desiring to build new.  I am really glad you posted this so I can correct myself.

Oct 21, 2013 06:55 AM #3
Ambassador
1,160,707
Jerry Newman
Brown Realty, 210-789-4216,www.JeremiahNewman.com - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

Hi Gene, We get a lot of buyers in Texas who would be using this Type of Loan. Many will go and find their lot or a few acres, and decide to build their Dream Home. We used the term "Interim Construction Loan."

Since we have a lot of Land in Texas, there are many looking to build their custom homes on their own lots. Glad to hear that New Home Construction is Booming in Chicago area again. You are certainly the source for those buyers who need a Great Lender. 

Oct 21, 2013 07:02 AM #4
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Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

I wish we could get just a sprinkle of new construction... but our rural area is generally behind the metro areas in the market.  It was a good 18 months of prices falling everywhere else before ours started to decline in 2008.  Perhaps we just need a bit of time to start new construction too.

Oct 21, 2013 07:11 AM #5
Rainer
40,425
Mike Rankin
ClearPath Mortgage Solutions, Inc. NMLS #1394615 - Albany, NY
Mortgage Consultant

Hey Gene,  This sounds like a great product. I'm actually interested in how I can get this product in NY. Any thoughts?

Oct 21, 2013 07:47 AM #6
Rainmaker
1,228,961
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Sharon:  That is the name we utilize here in our area .. perhaps it's known by another name in yours?  Glad you found the info of help.  If I can clarify anything ... shout out ...

True, Lenn.  As long as there are viable solutions ... all is good.  The norm in our area is now for builders to build and complete the home, then sell.  But other solutions are still needed.  This "construction to perm" is a great option for them ...

Jay & Michelle:  Our industry moves quickly, so it's a challenge to always have the latest updates and changes to programs available.  I'm glad that I was able to fill in the gaps for you regarding this program.  Always feel free to contact me, should you need clarification on what you read in my post.  I'd be happy to help where I can ...

Thanks so much, Jerry!  I can only imagine that you see a wide range of needs for financing in Texas.  Sounds like you are well-versed on all the options available ...

Tammy:  I'm sure you'll find that to be true.  Our area is finally starting to heal a bit .. but definitely lagged behind other metro areas in doing so.  We have lots of room to grow in the Will County/Chicago Southland region.  We'll be a prime area for construction once we get rolling again ...

Gene

Oct 21, 2013 07:56 AM #7
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Gene excellent explanation of a Loan Product that is not always easy to understand.

Oct 21, 2013 10:04 AM #8
Rainmaker
1,228,961
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Mike:  Start with the Lenders you place your loans through to see if they have a similar product?  We're fortunate to have a relationship with a Bank that offers this product, along with some Portfolio products.  I checked to see if we are licensed in New York.  We are not ... yet.  License is pending.  So I can't offer you the product through our services at this time.  If I find anything further out, I will certainly contact you immediately ...

George:  Thank you.  In our area, this product definitely fulfills a need.  I'm hoping it proves interesting and beneficial to others too ...

Gene

Oct 21, 2013 10:59 AM #9
Rainmaker
1,317,551
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

Gene -- it's good news to know that construction to perm loans still exist!  We are starting to see more and more new construction and the real estate market recovers.

Oct 21, 2013 12:08 PM #10
Rainmaker
739,079
Ed & Tracy Oliva
West USA Realty - Arizona - Fountain Hills, AZ
The Oliva Team Arizona Agents

Good Morning:   This is some great Info for all in the business, keep up the good work and good luck,  E

Oct 21, 2013 08:51 PM #11
Rainmaker
1,375,717
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Gene, in my area most of the lots are purchased or optioned by builders for subdivisions. The "construction to perm" loan sounds like a good option for buyer who purchase their own lot first.

Oct 21, 2013 11:25 PM #13
Rainer
311,755
Linda Metallo DiBenardo
RE/MAX Impact, Lockport, Illinois - Lockport, IL

Hi Gene,  Our market is just humming along in Will County!   Sunday I was heading north on Marley Rd., it was so cool coming over the bridge and seeing all those roof-tops at Sanctuary Pointe.  I had stopped earlier at Hibernia Estates and Michelle was signing 3 (!!) contracts. 

Gene, this is an excellent primer on new construction loans,  You are going to get many calls, builders are gearing up for 2014.   There will be more new subdivisions springing up.  Get ready!

 

 

 

Oct 21, 2013 11:58 PM #14
Rainmaker
1,228,961
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Joan:  That's great news!  When we see new construction poppin-up, we know that the economy is doing better.  That's unbelievably positive and welcomed news ...

Thank you, Ed and Tracy ...

Michael:  In large degree, that is what we see the most often here in our area too.  But the independent owner still exists.  It's good to be able to offer a viable option to them when they hope to build ...

Linda:  I agree .. it's a sight we all want to see!  One that's been missing for too long.  Unbelievable how quickly John and Sandi's subdivision filled-in and was completed.  Proves the desire, need, and ability is there in our area.  And what a great value it is.  Definitely seeing much the same thing out near Manhattan too.  ALL good news.  Shout out if I can ever be of assistance, Linda ...

Gene

 

Oct 22, 2013 02:38 AM #15
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Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Gene: Thanks! I'm glad you can offer that to your clients. I wish we could but my credit union is pretty risk-averse at this point. Take care.

Oct 22, 2013 05:43 AM #16
Rainmaker
1,228,961
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Paul:  Understandable, depending on the circumstances.  Some are better at absorbing risk than others ... and timing can be very important too.  Good to know when others might have options that exist ... or where to find options though ...

Gene

Oct 22, 2013 07:11 AM #17
Rainmaker
3,251,386
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce

Many people who want to jump into new construction are clueless about construction loans.

Oct 22, 2013 09:05 AM #18
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Rainmaker
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Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi

708.921.6331 - 40+ yrs experience
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