Building a new home may be something you are considering, especially when the current pre-existing home inventory in the Twin Cities and surrounding areas are currently on the low-end. If so, you should contact a mortgage lender to discuss the options for a new construction loan, Please find below some general information pertaining to new construction home loan.
What is a construction loan?
New Construction loans are short-term, which can be a higher-interest-rate mortgages that cover the cost of building or renovating a home. When the buyer qualifies for the final mortgage and the lender pays the contractor for cost on a pre-approved schedule. Once the construction is complete, the loan is converted into a traditional home loan.
Type of Construction Loans
• Construction to Permanent – Converts to a permanent loan with the interest rate locked in at closing.
• Construction Only – Must be paid off when construction is complete, so the borrower will then need to get new financing.
• Renovation Construction Loan – Cost of renovations are included in the original mortgage based on the value of the home after the repairs or upgrades. Best used for buying a fixer-upper property.
What’s included in the loan?
The construction loan generally pays for:
• Land
• Labor and materials
• Plans, permits, and fees
• Contingency reserves to allow for changes and delays
Can I qualify?
All mortgages have minimum qualifications for approval. Construction loans are riskier for the lender because there is no existing collateral in the form of the home. Along with typical requirements for debt-to-income limits and FICO score minimums, the mortgage lender will often ask for a higher down payment (20%-30% is typical) and a plan to pay off the loan at the end of the project (proof of cash or loan).
If you’re considering buying a new construction home in the Twin Cities or the surrounding areas, please feel free to contact RE/MAX Results – Shannon Lindstrom, Realtor @ 612-616-9714 or visit www.ShannonLindstromRealtor.com.
The information above is general information, it’s important to speak with a mortgage lender pertaining to details pertaining to new construction loans, etc..
