New Home Construction Financing
in the Chicagoland Area
My wife and I were out running errands over the last weekend. We weren't alone. The roads were filled with cars.
As we drove along, we both noted the healthy spattering of new construction popping up all over. Once a very familiar sight in our area, new home construction came to a screeching halt during the housing crisis.
The area in which we live, Will County, IL ... as well as the entire Chicagoland area ... exploded with new construction during the housing boom. According to the 2010 Census, Will County, IL saw a growth in population of almost 35% over that reported in the 2000 Census. (That 2000 Census had reported an increase of almost 41% over the previous census.) It's no wonder Will County was named the 2nd fastest growing county in the State of Illinois during that time.
Seeing newly-framed homes, new developments, and a number of contractor's trucks on the highways once again was very welcomed, as it's a sign of an improving economic and housing market. This new construction activity has delivered bonuses with it. It's brought a flurry of calls and questions regarding new construction financing.
As with many things in the current real estate industry, the new form of construction financing doesn't completely resemble the old. Here's some of the changes to be found ...
Years ago, vacant lots were often times owned or purchased by the homeowner. In this scenario, when the Individual (not a Builder or Contractor) owned a lot and chose to build a new home on it, the typical financing route was a "6-month construction loan", secured by the Individual Lot Owner (Borrower) at a Bank or Mortgage Company.
During the construction process, the Individual/Lot Owner requested that 4 or 5 "payouts" be made. These "payouts" were funds from the loan that paid the Sub-Contractors for their completed work (supported by signed and notarized Contractor's Waivers).
Payouts were usually preceded by inspections (performed by the Bank or Mortgage Company's Appraiser) that verified the payout of funds requested appropriately reflected the actual work completed.
The stages at which these "payouts" were considered, usually include completion of:
- Excavating and Foundation
- Rough Framing/Construction of the Residence/Garage
- Rough Mechanicals - Plumbing, Electrical, Heating and Air Conditioning are "Stubbed" in
- Insulating, Drywall, Millwork (Trim, Doors, Windows)
- Final Inspection - (100% Complete - Final Occupancy Permit)
After completion of construction, the Homeowner sought a permanent, or "end loan" to pay off the Construction Loan. (Construction Loans are typically a short term, interest only type of loan ... not intended to be for a Fixed Term, such as 15, 20, or 30 years.) The Individual/Borrower's permanent Mortgage was then based upon a "completed" value, as determined by the Mortgage Lender's Appraisal.
This value estimate was typically in line with the Cost or Value of the lot, PLUS the Construction Costs (Labor and Materials). The new loan was then considered a Refinance. Loan-To-Value considerations were based upon the new Appraised Value.
In today's environment, MOST of the building sites in Will County, and elsewhere in the Chicagoland area, are created and owned by Developers/Builders, who market/sell their products from Model Homes.
Prospective Home Buyers contract for varying features and amenities offered in addition to the basic model chosen and semi-customize their new home according to their tastes and preferences.
In this scenario, the Builder funds his own construction process (usually with their own banking relationships, or cash), and when the home is completed ... sells the home outright to the new Homeowner. The Homeowner/Buyer secures traditional Mortgage financing, according to the agreed-upon Sales Price, and closes after the Final Occupancy Permit is issued and the home is complete.
So what are your current financing options if you own your own lot in Will County or Chicagoland and wish to hire your own Contractor to construct a new home on that lot?
I have good news!
Another loan option exists and is available to you in this building/financing scenario. This loan option performs as a combination of the two forms of financing related above. It's known as a "Construction to Perm" loan.
A "Construction to Perm" loan provides the money needed during the construction period and then converts to a permanent (End Loan) after construction is completed.
I'll be offering more information regarding this loan option ("Construction to Perm") in greater detail in an upcoming blog. Should you have questions or have a more immediate need for information or assistance, contact me at your convenience at any of the options found below ...
* Hoping to Buy or Build a Home in Will County or elsewhere in the Chicagoland region? Contact Me! I'll put my 37 years of mortgage experience, knowledge, and expertise hard to work on your behalf.
I can be easily found at:
Gene Mundt, Mortgage Lender, a Lender with 37 years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including:
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL.
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