You have searched the MLS and been to 100 open houses. You have seen every floor plan available in the neighborhoods you want. You even do extensive research to make sure you are being offered the best price for the home. These are great and effective ways in going about your next home purchase, however, none of these options are more rewarding than having the home built exactly the way you want it. Construction loans will be something you will want to explore.
Construction loans offer you the option to get the financing you need for the construction of your new home. Now you can design it the way it was intended to be, exactly the way you want it. From initial builder plans to purchasing the land lot, there are many steps in the Construction loan process that you need to pay attention to.
After the construction loan, you will get your permanent financing issued. This usually is a one-time close, where you do not have to go through the pre-qualification process again and pay another set of closing costs.
The amount of money to build the home in relation to what it is worth. For example, an LTC of 80%, means that the home lender will lend 80 %.
A $500,000 appraised home that costs $400,000 to build will have an 80% LTC. In this scenario, the borrower is taking advantage of the low costs of wholesale construction, and can actually move into the home, if built correctly and on time, into an equity position.
Here is a list of some basic requirements you will need in order to qualify for a construction loan:
To have a more in-depth look at this requirement please view our article on construction loan requirements.
Yes, you will need to either own the land outright, have financing in place on the land, or have a contract with the seller with a close date set, so they know exactly when they will be paid from the construction loan.
No, for VA you need zero down, FHA 3.5% down, conventional 10% down, and jumbo 15% down for owner-occupied residences. You can use the land as equity towards your down payment as well for the overall project.
No, for VA, FHA, and USDA. For conventional, it is usually what our Desktop Underwriter will state. For Jumbo, the reserve requirement is 9 months of Principal, Interest, Taxes, and Insurance.
Yes, in most cases the seller will provide owner financing, and local credit unions, and banks will lend up to 90-100% LTV on the land value, with terms ranging from 1-15 years, so you can focus on your project.
Single Family Homes, Manufactured Homes, Custom Homes, Modular Homes. NO to tiny homes, kit homes, log cabins, geodesic dome homes, or barn homes.
6 months up to 24 months, depending on the loan program. For conventional and jumbo up to 24 months. FHA, VA, and USDA no longer than 12 months.
We do not. It will be your job to find a general contractor that is properly licensed and insured. We do have to approve all general contractors, so it is important they send us all required documentation including the final bid for your project, in a timely manner.
The first step is to get credit qualified so you know you can handle the mortgage payment once construction is fully completed. After that, you would look for where you would like to purchase the lot, where you will build your dream home. Shortly after that, I would start looking for general contractors in the area, who can assist with all of your soft costs, including architecture and engineering. Finally, once you have all your plans and specs done, the general contractor will issue you a final bid for the entire project, including the cost of construction.
I encourage you to shop around, as every bank and lender will be different in their requirements. What I have found out is that many local banks will have stringent requirements when lending on new build construction. These include overlays they do not discuss with you upfront, which can cause delays or potential loan denials as you get through the underwriting process. This includes Asset Requirements are too much, as they want 12 to 18 months of reserves in the bank, debt to Income Ratios are set at low levels not to exceed 38% in some cases, they use the lower of the 2 - Cost of construction vs Future Appraised Value to land at the Final Loan to Value of Project, and very high credit score requirements.
You will get a Time Close, so no need for 2 sets of closing costs. You will pay interest only on the money you borrow during construction, and that rate will convert to a 30-year fix, once the construction period is fully completed, and you are issued your Certificate of Occupancy. For example, if you borrow $50,000 in the first month for your 1st draw, which includes all building permits, some foundation work, etc, you will pay interest only on say 4%, until you take your next draw, thus will increase your payment in month 2.
Brian Quigley has been getting people qualified for home construction loans in Denver and throughout Colorado since 2003. Contact Brian today at loans@beaconlending.com or call at 720-524-3215.
Our office is located in the northwest area of downtown Denver just 1 block North East of Coors Field on Blake Street. Our building sits on the Northwest Corner of Blake Street and Park Avenue West.
