New Home Construction Loans,
Information and FAQ
Home construction loan budget and the draw process
are handled pretty much the same way by most programs.
Here we present the entire process in an faq format
as well as a series of useful articles.
T his type of financing differs from regular purchase money or refinance home mortgages in the way the loan amount is calculated and the way it is structured.
B efore calculating the loan amount, we need a basic budget.
T he main components of construction loans that are included in the budget are:
1- Soft costs; consisting of architectural plans, engineering and permit fees.
2- Hard costs; which are all the actual physical costs of construction.
3- Closing costs; consisting of origination and lender fees, title, and closing fees.
4- Inspection fees.
5- Reserves; consisting of interest reserve and contingency reserve.
6- Existing lot pay off.
R egular purchase money or refinance mortgages are based on Loan to Value Ratio (LTV). Where as, construction loans are based on LTV as well as Loan to Cost Ratio. Further more in a normal mortgage the closing costs are added on after calculating the Loan to Value, whereas a construction loan is inclusive of closing costs.
W hat makes the whole thing more complex is the fact that the way these numbers are calculated or the way the numbers are put together differ from one investor to the next.
I n fact the calculations get complex enough that most loan officers in most lending institutions don’t even know how to calculate a loan amount, which results in last minute unpleasant surprises.
T he problem most applicants of construction loans face is when at the 11 th hour they get a call informing them of the final loan amount as calculated by an underwriter which may not be sufficient to meet the borrower’s needs.
A t Construction Loans FAQ we specialize in this type of financing. Our familiarity with the guidelines of construction loans offered by most major institutions makes it possible for us to choose the program that best suits you and your project.
S ince we are approved brokers with all these investors, the cost of the loan to you is either the same or sometimes even better than applying directly.
New Home C onstruction loans are a specialized field:
F or Detailed FAQ on the entire process including Draw and Budget please go to the:
Construction Loans FAQ page.