Buyers must examine their financing options carefully when considering a custom new construction project without the collateral of an existing home. Unless they can finance the building of their dream home themselves, potential homeowners may need a construction loan or Construction / Permanent loan (C/P). These custom loans were once readily available to small, custom builders before the recession, but have become much harder to get. It is often up to the buyer to negotiate the loan.
“Construction/Permanent loans are a one-time closing, so costs are only paid once,” said Hamby. “The customer qualifies for both programs up front so there is no additional qualifying of appraisal of the property upon completion of the construction. The C/P program allows great flexibility as there are no prepayment penalties. A customer that has a current home to sell can apply any equity they receive from the sale after completion and reduce both their outstanding loan balance and monthly payments.
“One of the best options of our C/P program is that you can lock in your rate for your permanent loan at the time of application. This means you do not have to worry about rates going up during the time needed to complete the home,” said Hamby.
“The down payment requirements are as little as 10% for a loan amount of $424,000 or less and the maximum C/P loan amounts are $2,000,000,” said Hamby.
These other features are typical but the details will be unique to each customer and situation.
- A construction loan typically is no longer than a year.
- It will have strict guidelines and monitoring.
- The loaning institution will want a timetable for construction, complete plans and a well-developed budget.
- 80% is a probable funding figure and clear ownership of the property offers potential collateral.