Building a new home can be an exciting time for a family. You have had the home designed, you have picked a builder, you have picked the fixtures for the home, and you have found the land in which to build and now it is time to find a lender that will finance this dream of yours.
A number of questions surround the financing of a new Construction Loan.
- Can we finance the land with the cost construction? Answer: Yes
- Are Construction Loans a one time close or are there multiple closings? Answer: It depends on the lender you choose.
- What information is needed to start a Construction Loan? Answer: As with all mortgages the rule of 2 applies on the credit side. 2 Years Tax Returns (business and personal), 2 Years W2’s, last 2 pay stubs, last 2 months bank statements. On the collateral side (appraisal) you will need plans, specifications, designs/drawings of the new home as well as contract between you and your builder.
- Is there a minimum credit score lenders look for on a Construction Loan? Answer: Yes. Because there is added risk on a Construction Loan (as the lender is lending money on something that does not exist) the typical minus credit score for a construction loan is 700. Some lenders will make exceptions to go lower (if you have more assets). Be sure to ask your lender the minimum requirements.
- Do we make mortgage payments during the construction of the home? Answer: Yes. Most Construction Loans require interest only payments during the contraction phase of the home. After the home is complete the loan will change to full amortization. This is where you will make full principle, interest, taxes, and insurance payments. ** On loan amounts below the conforming loan limit you most likely will make fully amortized payments as soon as the loan closes and during construction.
- What is the minimum downpayment for a construction loan? Answer: It depends on the lender you choose. Some lenders will go to a loan amount of $1 million with 10% down. Others will go to the conforming loan limit with 5% down. Every lender has different criteria. Be sure to interview a few lenders and explore all your options before moving forward with the Construction Loan.
- When is the down payment due for a new Construction Loan? Answer: When the loan closes. The steps for a Construction Loan involve making a loan application with a lender, getting approved, having the appraisal ordered and approved, have the builder approved to do the work why the lender, close the loan. On the day of closing the down-payment (along with closing costs) is due.
There are a lot of moving piece when it comes to Construction Loans. The key to a seamless build is putting together a dream team. At BuildButler we have put together a team of trusted professionals to help you along the way.