Construction Loans

IF ONLY…….

If only…. your home had a second floor, bigger garage, family room then it would be “perfect”. Or, you really liked the location and the lot that the last home you saw was on, but if only the house was bigger. Then draw up your plans and brace yourself for home construction! There are now construction loans that will allow you to buy the home (or remodel) and the loan to value (LTV) will be based off of what the house will be worth (future value) when the improvements are completed. This applies to refinances as well as purchases! Now, this may not seem exciting to the average homeowner; but, if anyone has been through the construction loan process, it is almost unbelievable. Most construction loans base the LTV on “hard costs” value. In other words, what are the actual expenses involved in the entire project; and then the lender loans only 75 to 90% of that number. The only time that the lender takes future value into consideration is when this hard costs value is more than the future value. The home improvement project always has been the lesser of the two values.

The typical scenario for a purchase is: you have found the perfect lot but the house that is there is either not quite right, or a complete teardown. This loan will finance the purchase AND the remodel/ rebuild all in one loan. When the construction is completed (up to a year) the loan then becomes permanent financing, no needing to go out and refinance into another loan! For a refinance loan scenario, this works when a young couple buys their starter home, and then starts a family (and then, in some cases, has twins just to really stir the pot!).

Another feature from the lender is there are many different loan programs available for the permanent financing- from full income documentation to quick qualifier; from spotless credit to those whose credit is less than perfect. The lender will also use this program for a borrower who isn’t going to occupy the house!

There are some hoops to jump through for this loan, such as approved plans, before the application can proceed. But, the options that the loan opens up are endless.

Give me a call with your “If Only…”

Fixed rates for mortgages under $300,700 as of 6/20/02 (a.m.) are:

30 year: 6.125% (APR 6.41%) payments are $1,827.08/mo.
15 year: 5.625% (APR 6.10%) payments are $2,476.96/mo.