If you are planning to build a new home or improve your home with a large renovation, it is likely that financing is an integral part of your decision-making process. From our experience working in banking and in construction finance, we understand that many homeowners can feel overwhelmed at times by the mortgage process.
You may find yourself asking "How much can I afford? How much will the Bank loan to me? How does a construction loan work? What happens with my mortgage when construction is complete?" It is important that you understand your financing options as early in the process as possible and to make your construction decisions accordingly.
But with the ever-changing nature of credit markets, the options available to you for financing are different from bank to bank and client to client.
Using our experience in mortgage lending and residential construction, we can help guide you through the financing process and assist you in securing the right loan for your project and your budget.
For both new construction and large renovations, the most common loan product available to finance your project is the Construction to Permanent Loan. The Construction to Permanent Loan (also called a "CP" loan) is a loan by which you, the Borrower, receive a "two-part" loan from the Lender to both build your home and provide long-term financing when the construction is complete.
While the construction period in the loan is relatively simple and is standard among most lenders, you as the Borrower will have the opportunity to select from many mortgage products when it comes to the permanent phase of your loan.
It is important that you as the Borrower receive a "Pre-Approval" from a reputable lender early in the process. This should be done before you finalize your costs and sign a contract with the Builder (and Seller, if applicable). Knowing your Pre-Approval Amount will help you in evaluating the property, the scope of work for the project, and the final cost of construction.
The Construction to Permanent Loan
- One application, one appraisal, and one approval process for both your construction loan and permanent mortgage.
- The construction loan will pay for the purchase of the land or existing home, construction or renovation of the home itself, and for "soft" costs such as architectural design, permits, interest payments, etc.
- The loan amount is based on both the Loan to Value and the Loan to Cost for the home. This amount can range from 80% to 95% of the final cost or appraised value of the home, depending on the borrower and project.
- During the construction period, monthly payments are interest-only. Interest is calculated only on the amount of loan that is used, not on the approved amount.
- For the permanent mortgage, you will be able to select from the wide-range of mortgage products available in the market.
- For current mortgage rates, visit: http://www.bankrate.com/mortgage.aspx
- For a mortgage calculator to help in your evaluation, visit: www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx
Your Mortgage Specialist
When deciding which mortgage product best suits your needs, your mortgage specialist will be invaluable in helping you choose the right loan. As a part of our service to our clients, we will work closely with your mortgage specialist to help you in this process.