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Building a dream home can be worth the time and money.  Building a home offers more benefits than buying a house that is already built.  The biggest advantage of having a custom build home is that it will be to your specific wants and needs.  The disadvantage is the time and process that can take to build the home. 

Building a dream home can be exciting and stressful.  Finding a home construction loan can be confusing and difficult not knowing where to start and whom talk to or where to find answers to all of your questions.  Working with a mortgage consultant who deals in construction lending can be very helpful from finding financing options to answering all your questions and walking you through the entire process.

An experience mortgage consultant can make a difference.

Find an experienced aggressive mortgage consultant who will make sure your home construction loan is completed in the correct amount of time to close the home loan.  Find a mortgage broker who is not afraid to compete with other lenders to get you the best rates, and follow up with great customer service.  Just because the construction loan has closed, does not mean the loan offier shouldl leave the picture, they should follow up on a regular basis. 

Frequently Asked Questions:

Q:  What is a home construction loan?

A:  A home construction loan is financing provided to build a house.  There are two types of construction loans:

-One type is called a "One Time Close."   This type of new home construction loan program is used to finance the construction of home providing both the construction financing and permanent loan all in one closing.  This means that you sign only one set of loan documents and do not have to worry about re-qualifying, re-appraisals, additional closing costs or signing additional loan documents. You can lock in the permanent rate at closing, and have up to 12 months to complete your new home construction.  During the this period, interest is charged only on the funds that have been disbursed.  When the construction is completed, the permanent loan period begins.

Unlike a purchase transaction of an existing home, new home construction loans involves determining the value of something that is not yet constructed.  To assist in determining the value after the home is built, the appraiser will need the following information:

• What is going to be built or constructed?

• How much will the material cost?

• How much is the actual work going to cost?

• How much did the land cost, what is the appraised value today?

• How much will be spent on plans and permits?

You will have two more very important items to be concerned with; your choice of the general contractor who will be awarded the contract and the actual text of the construction contract.

From the general contractor, we will need a resume and a builder's application to be completed along with a credit check. This is for your protection as well the new home construction lenders requirement, which ensures that he/she is experienced, has a proven tract record, and will be able to perform under the terms of the contract. The fact that we approve a general contractor should not imply that we guarantee his/her work and/or performance.  By looking at the builders resume and work, this will help in the selection of choosing a general contractor or builder.

-Spec House (Speculation) is when a contractors, builders, or developers who are building a home without a guaranteed sale upon completion.  It is called a spec house because the builder is building it on 'speculation' that the house will sell.  These individuals and companies are speculating that they will earn a profit when sell the newly constructed home.

Q:  When do I start paying on the construction loan?

A:  When financing is approved, the builder has draws or disbursements, of money to be taken from the lender to start and continue with the building process.  The disbursements are usually broken up into parts to where after each phase of the construction is complete, an appraiser will come out and report back to the lender on how the project is advancing and whether running the project is on schedule or being delayed.

Q:  What does it cost to build a home?

A:   Land + Supplies and/or materials + Builder/General Contractor + Financing Costs = Dream Home.  Those four things will determine the total cost of building a home. Many factors determine what the home will actually cost, from size, to materials, to which contractor you choose to work with.  The finance charges depend on which program is use.  Mike charges 1.5% of the loan amount, along with a credit check and a processing fee.

Q:  How much money does the borrower have to bring in to close the loan?

A:  Most of the time, all the financing charges, permits, and lenders fees can be included into the loan amount so that no money is needed to close the loan.  The lenders that Mike prefers to use are lenders who will go off the future appraised value of the property.  This is done by giving the blue prints and materials to a licensed appraiser to appraise the value of the home once completed.  Lenders will use this value, along with the borrowers application and credit score to determine how much they will lend out towards the project.  Lending off future appraised value ensures that most costs and fees can be included into the cost of the project so that the borrower does not have to bring any money towards closing costs.