New Construction Loan Program
ONE-TIME CLOSE NEW CONSTRUCTION LOANS
Purchase lot and build your dream house with ready funds
You don’t have to pay for the build and then get a mortgage. The mortgage pays for the build!
Gives general contractors more freedom to build unique dream homes for their clients, rather than cookie-cutter developments.
Once the loan is closed, the cash is ready for labor and materials. It also saves the expense of having to pay for the build up front and then find a buyer.
ONE-TIME CLOSE NEW CONSTRUCTION LOAN means that builder will receive funds to pay the employees and materials from day one (From 95% Loan Amount)
New Construction Loan
Lot loan+Construction cost-down payment=Loan Amount
- Only 5% down. A low down payment makes new construction loans accessible for more borrowers.
⦁ One approval. No need for a second approval.
⦁ Float down option. Once the loan is complete, borrowers can float down to secure a lower interest rate if the market changes or stay locked in no matter how the market moves.
⦁ Initial interest-only payments. During the build period, the borrower can enjoy a lower, interest-only payment.
⦁ Less out-of-pocket expense. The borrower doesn’t have to pay for the build and then get a mortgage. The mortgage pays for the build!
Important Steps to how to get approved for the new construction Loan
Pre - Approval vs Final Approval
You must be fully approved “initially” in order to start your construction project. This is why it is called “one time close” loan. Loan will be fully approved/closed initially. Your house will take few months after this (max 11 months)
Down payment
Step #1
Down payment must be ready with initial approval. Either you are going to put 5% down or more.
2 Months of bank statements required to show the balance and satisfy this condition.
Qualify -DTI - Debt Ratio Qualification
Step # 2
This is the important part to start the construction loan process. You must be fully qualified with the income qualification.
Are you going to keep your current home as rental or planning to sell?
If the monthly payment of your current home giving issue to qualify for the constcruction loan, and your current home must be sold before you can move forward.
Contractor
Step # 3
You must have hired contractor who can complete the construction loan documents for the lender.
Lot Loan
Step # 5
Once your loan qualification and contractor documents approved by the underwriter, then you are good to go.
Construction Funds
Step # 6
Funds to the contractor will be released as it progress the construction of the home.
Interest Only Payment
Step # 7
During the construction of your home, you ll be only paying “interest only” payment for the 95% of the loan. Lender will approve, fund your loan at the initial approval, but funds will be released to the contractor as it progresses.
One approval. No need for a second approval.
Step # 8
Modify down option. Once the loan is complete, borrowers can modify down to secure a lower interest rate if the market changes or stay locked in no matter how the market moves.
Full monthly payment
Step # 9
You ll start receiving the fully amortized monthly payment including the principal and interest after the final payment and recording with your local county recorder.
5% down payment new construction loan process
Single family residence, duplex, triplex, fourplex
What is a single closing
Closing costs/fees borrower is responsible for are collected at closing
Funds are accessed through draws
There will be an initial draw at closing for proceeds to the contractor to begin the construction project
Construction Purchase: Sale price of the lot + construction costs - down payment
Lot Purchase: you are not current owner of the lot
The loan will purchase both the lot and fund the construction of the property.
What is construction refinance? Ans: Any existing lot financing + construction costs
If you already own the lot then
The loan will pay off any existing liens on the lot and finance the construction of the home.
Construction loan parameters
Minimum FICO score: 700
Down payment: 5%
(Max LTV [loan to value] = 95%]
Fannie Mae DU
Loan Structure
1. Loan process (Loan application, Loan Approval, Contractor Approval)
2. Construction period 11 months (Interest only payment starts from the day 1 of construction after loan funding of step 1)
3. On 12th month of construction period after occupancy approval, the final principal and interest loan term begins (Permanent financing)
Clear to Close: Closing of the construction loan
. 1. Closing documents signed
2. All closing fees are paid at the one-time close (before construction start)
Funding Process
What is initial draw: amount of funds to be disbursed at closing for the project to begin.
Draw Schedule: How funds to be disbursed to the contractor :-
1. Funds are released throughout the construction period.
2. A title search and inspection are done prior to each draw release.
3. 4 business days turn time once draw has been requested
Final Interest Rate: Loan modification
Loan modification to permanent financing is done at project completion
Final inspection and certificate of occupancy is required.
