New Construction Loan Options:
From the Ground Up
In a time where the inventory of homes for sale is limited, especially for existing homes, buyers have looked for options elsewhere. Often new construction has been the answer they found ...
- You own your lot and are looking to build yourself a custom home
- You find a new home subdivision and would be buying from a Developer/Home Builder (typically of the Builder's design)
But at American Portfolio Mortgage Corp, buyers can now apply/qualify for a construction loan and then convert that construction loan into what is called an "End Loan" mortgage upon the completion of their home construction. An End Loan pays off the loan that was taken to fund the construction of the home. An End Loan is commonly a 30-year fixed-rate loan similar to that implemented for existing home purchases.
In Scenario One ...
The first step of the process ... the construction loan ... works in this manner:
Home Plans, Specifications, and Contractor's Statements detailing the final home Costs and its qualities ... along with a list of the Contractors that will be contracting the home, building the home, and Sub-Contractors must be provided to the lender
1. Application for the Construction Loan financing must be completed
2. A downpayment (typically 20% or more) is needed. If the lot is owned free-and-clear (meaning no loan is outstanding), that may serve as the equity or down payment, depending on the lot price/value and the Home's Value upon completion
3. After Loan Approval is obtained, Building Permits must be acquired. Once this is accomplished, actual construction can begin. In most instances, the Construction Loan is controlled by the American Portfolio Mortgage Corp construction department and "payouts" (sometimes referred to as "draws) are made (upon completion at certain portions of the home building process).
4. Payouts typically are made in the following manner:
A. After excavation and foundation work is done
B. The rough carpentry work (known as the shell) is done
C. After the home is "under roof" and windows and doors are installed
D. Rough-ins for heating, plumbing, electrical work is completed
E. Final Inspection is performed (after 100% of the work is completed)
5. After all payouts (draws) are made and the home is 100% completed, the End Loan takes place. In most cases, an appraisal is performed, the title is updated, liens and payouts are cleared, and the Borrower(s)' credit, income and employment are re-verified for the final Mortgage Approval.
When the End Loan is approved and subsequently closed, the Construction Loan gets paid off and closed out. Interest on the Construction Loan gets paid at this time (at the end), or in an Interest-Only Loan Payment during the term of the Construction Period.
In Scenario Two ...
The client is simply buying a newly constructed and completed home from a Builder in their development.
For this purchase, the client must apply for mortgage approval after signing a real estate contract. Builders typically require that Borrowers are Pre-approved before entering into a contract.
The Pre-Approval assures the builder that the buyer is qualified to purchase their home. It also assures them that the Buyer can complete the transaction with financing upon the 100% completion of the home's construction.
This scenario typically means that initial approval of the buyer(s)' credit, employment, income, and debt-to-income has been performed and completed. The appraisal, title commitment, and Homeowners Insurance requirements will likely be done at a later time, typically after construction is near completion, or 100% completed.
The Mortgage Lender and the municipality (of the construction locale) will likely ask for/require final inspection be performed. This inspection, by an Appraiser and/or the local building inspector, is done to ensure the home is completed per the Plans and Specifications, Building Codes, and Contract terms.
No matter which scenario you choose, it's best to seek out the services of a loan officer that is experienced in new construction transactions, as they are often more detailed and complicated than regular loans. If you're buying or constructing a new home, it's no time to work with an experienced or rookie loan officer.
So choose wisely, as only an experienced construction lender will assist in setting a realistic construction budget and goals:
- Know the lending and construction requirements of each scenario above
- Be familiar with the entire construction process
- Be familiar with the new construction financing process, and the timetable associated with it
- Take the time to thoroughly explain and walk you through the steps of that process
- Dependably qualify and Pre-Approve/Approve you for your financing so you are confident throughout the process of a successful completion and closing
The transition from new construction financing to "End Loan" can be fluid and seamless when working with myself and American Portfolio Mortgage Corp.
Contact me today to ask your questions, gain the info you need, and start on successfully reaching your home building and financing goals.
- Are you hoping to Construct, Buy, Refinance or purchase a home or investment property in Chicagoland or elsewhere in Illinois or Wisconsin? Looking for mortgage financing answers, options, solutions, and experienced assistance?
Contact me! I'll put my 40 years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:
Gene Mundt
Mortgage Originator -NMLS #216987 - IL Lic. 031.0006220 - WI Licensed
American Portfolio Mortgage Corp
NMLS #175656
Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281
Gene Mundt, Mortgage Originator, an Originator with 40+ 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, Frankfort Square, Joliet, Shorewood, Elwood, Lockport, Wilmington, Crest Hill, Symerton, Braidwood, Channahon, University Park, Beecher, Plainfield, Bolingbrook, Romeoville, Tinley Park, Homer Glen, Crete, Peotone, Naperville, etc.), DuPage County, Kane County, Grundy County, the City of Chicago,
Cook County, and elsewhere within IL & WI.
Referrals are Appreciated & Welcomed!
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