Construction Loans
By: Sonny Allen
If you are not buying a new home from a builder but rather building a custom home you will be faced with several financing options. Construction loans can seem very complicated and confusing but if handled properly, are not so difficult. Construction loans are also called interim loans. Many mortgage lenders provide construction loans through banking relationships or through another popular construction program called a one-time close.
A one-time close means that you have one transaction that includes the construction loan and the permanent mortgage all at one time. The presumption is that you will save on closing fees by only closing once. That may be the case but don't jump to conclusions because many one-time close programs are loaded with fees that make them more costly than traditional financing. A one-time close can also be very restrictive because you close on the home before it is built. If you want to make changes during the construction process you may be forced to pay cash for any upgrades since the loan is already closed and cannot be changed without refinance.
Standard or two-time closes for construction loans involve first a loan to build the home and then refinancing that loan into a permanent mortgage when the home is complete. This process of construction lending offers more flexibility because you can make changes during the process, provided your interim loan can be modified, which in most cases it can. When compared dollar for dollar, a two time close may be slightly more expensive that a one-time close. Integrity Home Mortgage can help provide you both interim and permanent loans as a package deal which can make the process less costly than a one-time close.
Either type of financing will require that your builder be approved by the lender. Construction lenders will look at a builder's financial background as well as their experience level and sub-contractor relationships. Your builder will “draw” against the loan as the home is being built to pay for materials and labor. When the home is finished, your loan will be modified or refinanced into a permanent loan. Integrity Home Mortgage has working relationships with some very good builders so call us if you need a referral.
Integrity Home Mortgage can make your home building or renovating process easy and affordable. We can provide interim financing or a one-time close. Call us for the best terms on construction lending.
