Asheville Home Builders - Financing Your New Home
Obtaining financing will be one of the most critical issues with building your Asheville home. Without financing the project will not take place. Treat this phase of the process with utmost respect. If you are acting as your own contractor you must even be much more professional in your presentation. The lender has to be convinced that you know what you’re doing. Who’s Got the Money? There are a number of types of lenders. Here are some common sources for loans: -Savings Banks -Commercial Banks -Credit Unions -Mortgage Brokers -Mortgage Bankers -Builders and Developers -Government Agencies .
Government Loans There are several types of government loans, but the two most popular are the FHA (Federal Housing Administration) and VA (Veteran’s Administration). The FHA loans are guaranteed by the Federal government. These loans offer many benefits to the first time home buyer. The most important benefit being the lender will usually accept a smaller down payment. In addition to FHA loans the government sponsors another type of loans for veterans. These loans are guaranteed by the Veterans Administration. Again the VA loans are poplar because they require little or no down payment. These two types of government insured loans are available through many mortgage companies and certain banks and savings institutions. However, VA and FHA have very specific requirements with regard to loans on new construction, so it is absolutely imperative that you check with your lender before commencing any construction if you wish to obtain either of these types of financing. Another source of financing is the Federal Land Bank Association, a national non-governmental association that makes loans in rural areas (the property cannot be within city limits). In addition, there may be local and regional financing programs available in your area. Again, you can consider several financing options.
The Construction Loan First it is important to obtain what is referred to a construction to perm loan. This is where there is only one closing that takes place instead of two. (One for the construction loan the other for the permanent loan. This will save you money on extra closing cost that occur from two closings. Most lenders offer a construction to perm loan. Be sure to apply for the amount of money you need. Don’t plan on getting extra money later. Once construction begins stick to your original loan amount and budget and pay for any changes and upgrades out of pocket. This is when the 5% reserve comes in to play.
Pre-Qualification Meeting Many lenders today will meet with you and review your income and debt ratios and give you an approximation of the amount of loan you will qualify for. You may use this tool for setting the budget for your new home, but remember, what you qualify for and what your willing to pay for housing each month may be different. Don’t use the amount you qualify for as your budget unless you are comfortable making the mortgage payments.
The Financial Package Make sure your financial package is complete before visiting the lender. Once you have interviewed several lenders, choose one to submit your package. The reason is that most lenders are going to want $300 to $400 at this point to pay for the credit report and appraisal on the home upon completion. Don’t waste money on two to three lenders since only one is going to do the loan. A good financial package will consist of the following: -personal financial statement -resume or personal biography (if owner-builder) -total estimate of the project or contract from the builder -description of material (by builder) -survey of proposed building site -set of house plans -copy of builders license (if hiring one)
Start Up Money Most lenders are going to want to see some equity put in by the owner prior to approving the loan. Typically, this can be in the form of equity in the land. (The value minus what is owed on it) or cash in the bank. This start up money is used for -land purchase -closing cost -permits -blueprints -insurance Some lenders will put these cost into the loan. Be sure to ask what your lender policy is on these expenses.
Draws Once the construction loan is closed, then the lender will make progress payments on the construction as work is completed. In other words, the lender makes you earn your money by inspecting the job for the percentage completion and making payments accordingly. All lenders have a preset draw schedule they work from. Be sure to ask for a copy of the draw schedule and review it in comparison to your estimate to see if there are going to be any areas where you will be underpaid for a particular line item. A good example is the lender agrees to pay you 2% or $4000.00 for the driveway being complete. Your estimate for the driveway is $6000.00. You are going to be $2000.00 short in paying the bill. You can ask the lender to adjust the % for particular line items as long as they are not paying out more than 100% of the construction loan they will often adjust it. This will help you manage your cash flow better.
Converting the Loan to a Permanent Mortgage Once the home is complete and the bank has done its final inspection a meeting will be set at the lender office and the construction loan is converted to a permanent mortgage by executing a few documents.