(1) Term - In my area, construction loans are 6 or 12 months. Get the longest term you can because new construction frequently runs over. We built a large house and really had to hustle to get it done within the term of the loan.
(2) Penalties - Some loans have very, very stiff penalties if you do not do your "take out" mortage by the end of the 6 or 12 month period. I'm talking like 1% PER MONTH if you run over. Over and above your interest payment.
(3) Up front points - Some lenders charge upfront points on a construction loan, some do not. On a conventional mortgage, these points may lower your rate over the life of the loan, which may be up to 30 years. On a construction loan, these points are over six months or one year, not 30 years, and that is very material. In our case, we paid .75% upfront. When it came time to do the take out mortage, the lender did not give us a competitive rate. We went with a different lender on the take out but felt we wasted the money on the upfront points.
As Wayne said, get the terms of the take out mortgage spelled out at the same time as the terms of the cconstruction loan. In our case, since we built the house to sell it, we did adjustable rate and that makes it a bit harder to nail it down. If your take out mortgage is adjustable rate, not fixed, I would really try to avoid the upfront points.
You are on the right track by looking at this early. Btw, if you already own the land, (as we did) a lender will consider the construction loan a refinance. And then if you do your take out mortage with a different lender than the construction loan, it will again be considered a refinance. We had to explain why we were doing what looked like back to back refinances. Next time around, we will do as you are doing, look at it early and plan it out.
Do you own the land? If not, are you looking at a all-in-one type loan?
Given the current lending situation and since I just had a lot sale flip because
the buyer was unable to obtain financing, I would make sure who ever you
talk with is very familiar with the current programs and have done these
types of loans often in the recent past. The lender that I work with and have worked
with over the past 15 years could have done it but didn't specialize in these types of loans.
So she referred my to a lender in her office who does these loans on a regular basis.
If you are interested I can give you their website and contact info.
Good luck and remember when it is all over it is worth it.
Oh, lender vs mortgage broker. Lender may be limited to their inhouse programs. Broker will be able to shop for best program that fits your scenerio. The gal that I used is a broker who's company has its own money so is a lender also. Best , in my opinion, on the eastside. :-))
Some banks will do construction loans direct - like HomeStreet Bank, Countrywide, WaMu and others. How much they'll offer for a loan will vary from day to day depending on what the lending market is doing. You might even contact your own banking institutions to see if they have a program they can offer you.
A mortgage broker gets paid to shop the loan for you and they have contacts with several lending institutions - some of which may not be banks but are other kinds of financial institutions or organizations with money to lend (ie, insurance companies or investment groups). For construction loans you'll likely not get a loan from one of these types.
Expect a timeline of completion to be required, which will vary by your project type and scope, and there will likely be a period where you go from being on a draw (with completion dates/sign-offs/approvals required) to an adjustment to a standard type amortized loan. During construction you will likely pay interest only.
Be aware, ask lots of questions, do your homework and you should be able to find a suitable loan for you.
Team Reba of RE/MAX Metro Realty
A reverse mortgage is a loan for senior homeowners that uses a portion of the home's equity as collateral. The loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance.
All remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage.
http://www.reversemortgagelendersdirect.com/reverse-mortgage-loan/ http://www.reversemortgagelendersdirect.com/reverse-mortgage http://www.reversemortgagelendersdirect.com/reverse-mortgage http://www.reversemortgagelendersdirect.com/reverse-mortgage
I recently researched the same thing for myself and found that I really will end up going with a mortgage broker when it comes time to actually start the process. There just seemed to be more options.
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