If you have always dreamed of building and living in the home
you’ve helped design, it’s time to seriously consider putting
your dream into action. In today’s mortgage market, a specially
designed loan for just such a homeowner, the construction to
perm loan, includes the construction loan to build the house,
and the permanent loan to purchase the home. Mortgage lenders
used to offer this as a two part process, first financing the
construction loan and building the house, then obtaining another
mortgage to purchase the home. There were two closings, and two
sets of closing costs with this type of loan. The
construction-to-permanent loan allows for one application
process, one closing, and one set of closing costs and is
simpler, cost-effective, and less stressful for the applicant.
Some construction to perm loans allow custom building of a home
with an adjustable low payment during the construction process.
For those who may have purchased a piece of land, or intend to
buy a piece of land then build on it, this informational article
will show you how to finance the custom built home before it’s
built. When choosing a lender and a builder, take the time to
find viable partners in your custom building project who share
your vision for your dream.
Lots for Building Custom Homes It is often best to select a
finished lot. This means the lot is equipped with water and
sewage systems, electricity, and road access. The lot should
also be recognized as a single piece of land and have a boundary
designation recorded with the county or city.
Finance Your Custom Built Home with a Mortgage Broker Breakwater
Mortgage, in Virginia Beach and Williamsburg Virginia, is a
Mortgage Broker. Mortgage Brokers have a wider variety of loan
programs for consumers to select from. Visit a mortgage broker
for the most competitive deals on a construction to perm loan.
The lender will want to investigate if the land is appropriate
for building by reviewing the land survey and building plans
first. They will also check to see if the contractor is on the
approved list of builders. If not, the selected builder will
have to submit an application to become one.
Select the Builder of Choice for Your Custom Built Home Many of
the larger name builders are already approved for many lenders.
Ask the lender if your builder is approved. If not, most private
builders and architects can easily apply through lenders. Each
lender has different criteria for builders. If the homeowner is
not satisfied with the builder they have selected, many loan
programs allow them to fire the builder and begin with another
approved builder. This gives the homebuyer power over their own
destiny during the custom building and construction process.
Consumer Highlights for Construction to Perm Loans Construction
to Perm Mortgages are written for primary and secondary homes.
They are not allowed for investment property. Construction to
Perm mortgages are not written for modular, pre-fabricated, or
manufactured homes, either. One unit is allowed per mortgage.
The construction term of the loan is from six months to 12
months, with exceptions up to 18 months on some products. Ask
your mortgage loan officer about subordinate financing. There
are also creative financing options available for homebuyers who
want to put the minimum down and pay a low interest only payment
while the house is being custom built.
Lender Requirements for Construction to Perm Financing Lenders
require standard credit documentation and high credit scores for
construction to perm financing. Lenders also request: 1. Final
plans and specifications (needed to obtain appraisal) 2.
Purchase contract for lot (or settlement statement if already
purchased) 3. Property profile (a description of materials for
custom building). 4. Line item cost breakdown from the builder
5. The builder’s construction contract 6. A copy of the
builder’s license 7. The builder’s statement or application
(showing the company as approved or applying to be approved to
build a home). In addition to these documents, it is essential
that the homeowner obtain the necessary permits to build in the
community.
Benefits of Construction to Perm Financing Construction to Perm
loans are a single close loan, and the consumer obtains
financing before construction. This gives the homeowner cash to
pay the builder and complete the construction. Construction to
Perm is a fully amortized loan. Nothing changes in the term -
it’s one mortgage. One of the greatest advantages to the
homebuyer with this type of home financing is some lenders allow
interest only payments while the home is under construction.
This gives the homebuyer a low payment option in the beginning
while living somewhere else. Once the home is occupied, the
mortgage payments are changed to principal and interest payments.
Financial Suitability for Custom Built Homes High credit scores
are important to lenders for construction to perm mortgages.
Liquid assets are also carefully scrutinized. For homebuyers
interested in construction to perm financing, the lender will
look for adequate savings to pay for the mortgage during the
construction period of the loan.
Down Payment Expect a 3-10% down payment to be required,
depending upon the loan amount for the construction to perm
financing. Smaller pieces of land or smaller loan amounts will
require a lower down payment.
From the vantage point of the loan officer, construction to
perm loans are a win-win situation. The homebuyer is purchasing
a loan they feel comfortable with. They have a reasonable
payment during construction, and business with the lender is
concluded at the time the loan is made. This type of loan allows
the person building their custom dream home to take control over
their biggest asset during the most critical phase:
construction. With financing in place, the borrower can make
sure the final product is exactly what they want it to be.