Mortgage Requirements Home Loans

New Home

“Frequently Asked Questions” about New Home Construction

Q: Are there “single-close” mortgages available where the loan starts off as a “construction loan” during the building stages and then automatically converts to a “regular permanent mortgage (final loan)” when the home is completed?
A: YES, depending on your qualifications and the area where you want to build your home. The benefits of a “single-close” are there is “1” application, “1” appraisal, “1” approval, and “1” closing and everything is done prior to the home being started. During the construction stages, you will make “interest-only” payments based on the amount of funds disbursed. When the home is finished, the “construction loan” ends and the “final loan” begins about 45 days after the home is finished. For projects that do NOT meet the criteria for a “single-close” a “two-close” program may be available for you.

The Benefits of a “single-close” Vs. a “two-close”:

  1. Your “Final Loan Interest Rate” is LOCK-IN and GUARANTEED upfront. In a “two-close” program, the “Final Loan Interest Rate” is NOT LOCKED-IN until such time as the home is almost completed. Without having a Rate GUARANTEED upfront that means you are subject to changes in your Final Rate. The Risk is all on you, the homeowner.
  2. You only need “1” appraisal. In a “two-close” you need an appraisal for the “construction loan” and then another appraisal for the “final loan.” That is an extra fee PLUS it is possible that the 2nd appraisal could be lower than the 1st appraisal and that can affect your loan amount, meaning you may need more cash for the 2nd closing.
  3. You only need “1” approval. With a “two-close” you need a 2nd approval at the end of construction. If a homeowner loses their job or the lending criteria changes, you may not qualify for the “final loan”.
  4. Finally, you only have “1” set of closing costs with a “single-close” and extra closing costs for a 2nd closing.

Q: In the case of a Log Home, Timber Frame Home, Prefabricated Home, or Modular Home, when does the Manufacturer get paid the balance due to them?
A: When the materials are delivered to the construction site, they are paid the balance due to them.

Q: Do lenders approve the Manufacturer, Dealer or Builder?
A:NOT usually. Most leave the selection process up to the Home Owner(s).

Q:Can a Home Owner be their own General Contractor (aka Self-Build)?
A: MAYBE, but usually NOT. Home building is a complicated task that requires budgeting, pricing, and supervisory skills beyond the technical knowledge of the building process. Hiring a Builder/Contractor with experience along with the “appropriate insurance coverage” is the best way to deliver a home within the budget and in the proper time frame. HOWEVER, if a home owner has experience in building homes it is possible for them to be their own General Contractor. Call us to discuss this in advance.

Q: What type of contract should a home owner have?
A:An “All-Inclusive Fixed Price Contract” is recommended with all the features added into the price. In most cases you will have “2” contracts. One will be from the “Materials Supplier, such as a log home Company and another from the Builder. When you add the prices from both contracts that equals the “Cost To Build The Home” not including the land value. There are exceptions to the above. For example, you might have your “2” main contracts above but the Builder wants you to pay for the excavation, well, and septic separately and not included in his contract. In this case you would have additional contracts. Call us to discuss this in advance.

Q:When does the home owner put their down payment funds into the transaction?
A: If there is enough Lot Equity for home owners who already own their land, that is the down payment and sometimes little if any additional out-of-pocket cash is needed. In any event, all of the funds are accounted for by the time the closing happens. Home owner funds are used first and then the balance of funds needed are drawn against the mortgage in the form of draws per an agreed-upon draw schedule.

Q: Can you give me an example of how equity in land I already own is counted towards the down payment?
Let’s use this example:
We’ll say the Appraiser said the land is worth             $100,000
The home owner still owes this much                         $ 40,000
The amount of lot equity used as a down payment is $ 60,000
This $60,000 in lot equity is looked at the same way as if the home owner wrote a check for $60,000.

Q: I want to build a new home but still own my current home which has a “lot of equity” in it. I don’t have enough in my savings to use as a down payment to start me new home. What can I do?
A: You may qualify for our STELLA program or perhaps another Home Equity Loan. As long as your income and credit scores are able to meet those qualifications, you could start building your new home while still living in the current home.

Q: What are the “usual down payments” required for a “Construction-to-Permanent Mortgage? What FICO Credit Scores are needed?
A: Requirements change periodically. It is always best to give us a call to discuss these subjects.