Construction Loans

About Construction Loans

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 the 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 then having the home built exactly the way you want it. Construction loans will be something you will want to explore.

A Construction loan will give you the funds you need to build your home, 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.

Here are some basic steps to give you an overview of how a construction loan works.

Buyer meets with architect to get plans to build for the home Buyer acquires Land Lot usually through financing or cash. Plans are given to General Contractor to build home Loan is given to buyer based upon LTC, or Loan To Cost -Loan is Usually a 6, 9 or 1 year term in an effort to give the General Contractor enough time to build. After the construction loan, you will get your permanent financing issued. This usually is a onetime 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.