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Understanding Construction Loans
Posted on 4/16/15 at 8:05 am
Posted on 4/16/15 at 8:05 am
(no message)
This post was edited on 6/11/15 at 8:54 am
3
Posted on 4/16/15 at 8:20 am to TigerSaint1
My understanding.. somebody correct me if I'm wrong.
You can use your lot as collateral. You get paid in "parts" for the construction loan. So you'll get 100k for the first 1/5 of the construction once they check to see that is done.. then you do the 2nd 1/5 and they give you the next 100k.. so on and so forth.
You typically have to have a take out agreement (that isn't the correct word) that basically is a statement by a bank that they will give you a mortgage once the construction is complete..
You only pay the interest during the construction you won't be paying off any principal.
ETA: You typically get paid at the end of the construction.. So you'll get paid the first 100k AFTER the first 1/5 of the house is completed. So you'll have to have enough equity to construct the first part of the house.. Again correct me if I'm wrong.
You can use your lot as collateral. You get paid in "parts" for the construction loan. So you'll get 100k for the first 1/5 of the construction once they check to see that is done.. then you do the 2nd 1/5 and they give you the next 100k.. so on and so forth.
You typically have to have a take out agreement (that isn't the correct word) that basically is a statement by a bank that they will give you a mortgage once the construction is complete..
You only pay the interest during the construction you won't be paying off any principal.
ETA: You typically get paid at the end of the construction.. So you'll get paid the first 100k AFTER the first 1/5 of the house is completed. So you'll have to have enough equity to construct the first part of the house.. Again correct me if I'm wrong.
This post was edited on 4/16/15 at 8:28 am
Posted on 4/16/15 at 8:59 am to yellowhammer2098
quote:
You typically get paid at the end of the construction.. So you'll get paid the first 100k AFTER the first 1/5 of the house is completed. So you'll have to have enough equity to construct the first part of the house.. Again correct me if I'm wrong.
I've found some banks that require your money to be the first spent. A few pay the first draft and you are responsible for the final draft which is usually appliances and finishings.
If you still owe anything on your land, it will be paid off with the first draft.
Posted on 4/16/15 at 9:05 am to MamouTiger65
quote:
Will they just use the lot as your collateral and issue the 500K in installments? And once construction is done will they just bundle the lot and construction loan together into one single mortgage? Also lets say you have 90% of the lot paid, will the bank still aprove you for the construction loan and would you have to go through the original bank the lot loan is with?
The construction lender will appraise your plans including the value of the land. Based on that they will lend you somewhere around 80-85% of the value of the house based on their appraisal. Construction appraisals tend to come in conservative.
With that money you have to first pay off the land. Then the rest of the money goes towards construction. If you have already paid off the land, you are left with more money to go directly to construction.
About a month before construction is complete you can lock in a permanent mortgage rate. Once construction is complete you get your mortgage.
Construction loans should be interest only and usually require you to complete all work and have your mortgage within 12 months.
Dealing with this process myself right now.
Posted on 4/16/15 at 9:13 am to MamouTiger65
Really good info thanks. Are you subbing yourself or have a GC?
Posted on 4/16/15 at 9:49 am to TigerSaint1
First off your architect better also be a builder or work closely with one in the area you're looking to build in. Some of these architects come up with $30,000 extra worth of rooflines with the quickness.
The bank will get your plan and lot appraised as one by an appraiser. So irrespective of what you paid for the lot the appraiser will compare your proposed home to other recently sold homes in the area and come up with an appraised value. The bank will loan you up to a certain amount of that appraised value. So in the case I was in; the bank was willing to loan up to 90% of the appraised value. If the appraiser valued it at 500k then the bank will loan you up to 450k. So you'd have 450k total that can be used to pay off the lot and fund the construction. Which answers your 90% paid off lot question. Basically if you owe 10k on the lot you'd end up with 440k to build the house.
The bank will get your plan and lot appraised as one by an appraiser. So irrespective of what you paid for the lot the appraiser will compare your proposed home to other recently sold homes in the area and come up with an appraised value. The bank will loan you up to a certain amount of that appraised value. So in the case I was in; the bank was willing to loan up to 90% of the appraised value. If the appraiser valued it at 500k then the bank will loan you up to 450k. So you'd have 450k total that can be used to pay off the lot and fund the construction. Which answers your 90% paid off lot question. Basically if you owe 10k on the lot you'd end up with 440k to build the house.
Posted on 4/16/15 at 9:55 am to TigerSaint1
I have a GC and worked with an architect to draw up the plans.
I've found there are usually 2 options, so you can figure which works best for you. They tend to loan up to 90% of construction cost or 80% of the appraised value. I have managed to find someone that lends up to 85% of appraised value.
I've also run into issues with some banks that require you to have owned the land for over a year before giving you a construction loan.
quote:
loan up to 90% of the appraised value
I've found there are usually 2 options, so you can figure which works best for you. They tend to loan up to 90% of construction cost or 80% of the appraised value. I have managed to find someone that lends up to 85% of appraised value.
I've also run into issues with some banks that require you to have owned the land for over a year before giving you a construction loan.
Posted on 4/16/15 at 9:39 pm to TigerSaint1
Check out Whitney Bank. I build and their construction loans are the tits if you can qualify. one poster hit on the way it works. An appraiser appraises the future house and the land as is. They will take those estimates and what you owe and apply a % of that difference toward your 20% down.
With Whitney they close you one time on higher construction rate and then simply convert it to a fixed rate after the house is complete. In the past banks would have you close two seperate time or hit you with a higher percent for one time closings. Whitney has best of both worlds.
With Whitney they close you one time on higher construction rate and then simply convert it to a fixed rate after the house is complete. In the past banks would have you close two seperate time or hit you with a higher percent for one time closings. Whitney has best of both worlds.
This post was edited on 4/16/15 at 9:41 pm
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