Home Construction & Renovation in October

These words (except for quotes) are my views & opinions and do not represent those of my employer.


Newly constructed residential home
From specs, plans and a vacant lot to this perfect abode.

Home Construction and You. A Couple of Thoughts (2 min read)

For a home buyer having a new home built or buying an existing older home is a big decision. More first time home buyers are even considering new construction is a great opportunity to personally design their dream home and save big money down the road on the repairs and maintenance costs of owning an older home. Here are a couple things to think about if you are considering new home construction:

Customization

New construction allows you to design everything from the roof to the basement. You can choose your floor coverings, windows, doors, cabinets, appliances, bath fixtures, built security and entertainment systems and a lot more. Some predesigned home floor plans even allow for customization of interior space like the location of walls and number of bedrooms and bathrooms. Brand new homes come with modern energy efficient heating and cooling and Smart Home technologies. All can be designed to your specification when you build a new home. All customization items should be factored into the total construction cost budget. This is very important when selecting custom items to avoid any unexpected financial issues during construction.

For economic and social reasons it seems fairly certain, there will be more multi-generational households in the years to come. New construction can be designed specifically for multi-generation occupancy, or with that option to convert later. They may even sell for more someday when it comes time to move (something else to think about!)


Financing

Unless you plan to use personal funds for everything, financing will be a critical part of the home construction process. Lenders require more documentation than they did a few years ago. So have your paperwork in order and ready to go. Your lender will tell you what’s needed. Speak to a mortgage loan officer with construction lending experience. An upfront review of the documentation and a prequalification interview will help you determine an affordable budget. This, in turn, will help you to determine what type of home you can build.

Building a new home provides many personal rewards and personal satisfaction but it’s also complex and can also be costly. A “one-time-close” construction to permanent mortgage can help keep monthly expenses low with interest-only payments during the construction phase.

On a purchase, you can finance up to 80 percent of the land and construction costs. If you own the land (or house if it’s a knock-down) you can finance 100% of the construction costs but you will need to pay off any outstanding loans on the land. This can be included in the new construction to permanent mortgage. When the 12 to 18 month construction phase is complete the construction loan converts to a permanent mortgage with principal and interest payments.

One final thought. Don’t be in a hurry. The planning out, design and construction of a new home can take a lot longer than you might think. Expect delays. In fact, plan ahead for them if you can.

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Arthur Aranda • NMLS #1042093
Construction & Renovation Loans
New Jersey, New York, Connecticut
201-741-1537 talk/text


Networking…

Interested in using LinkedIn to build your business? If yes, then let’s work together by following & supporting each other on LinkedIn.

Home Construction & Renovation – July

These words (except for quotes) are my views & opinions and do not represent those of my employer.


One Loan, One Rate, One Close

Framing of a newly constructed home
Framework of a future gorgeous home!

A Construction to Permanent Mortgage

This is one loan with one set closing to fund the construction and provide a permanent mortgage. The loan can be used to finance the purchase of the property and the construction costs. If the property is already owned, any equity created when the construction is complete can be used toward the total equity to finance the transaction, effectively creating a No-Down Payment Option. During the typical 12 month construction phase interest-only payments are made on the funds advanced to pay for the construction. A Loan Disbursement Schedule is set up prior to closing so both the borrower and builder will know how the construction will be funded. When all the work is complete the construction loan converts to a 30 fixed rate mortgage.

Depending on the borrower’s needs, the rate on a Construction to Permanent mortgage is locked at application or prior to the closing. This will be the same rate when the construction loan converts to a permanent mortgage.

At application, the borrower will need to provide the lender with a signed construction contract, signed property purchase contract, if applicable and a set of building plans. Building permits are not needed to apply but will be required before any actual construction may begin.


Because of the lengthy time frame involved with construction, up to a year or even longer in some cases, there are special considerations when it comes to construction financing. Each Construction to Permanent mortgage is structured to meet the borrower’s specific needs. Being prepared to make the transition financially and physically while a home is being built or undergoing major renovation can require some juggling and careful planning.

If the borrower waits to sell their current home until the new home is ready to move in, they must qualify for the new construction loan while still making payments on their existing home even if it’s listed for sale but has not closed. Borrowers who cannot qualify this way, may need to consider selling their current home before construction begins and temporarily rent or live with family until the new home is ready.

On a construction purchase transaction the borrower must put down at least 20% of the total acquisition cost, i.e. the combination of the property contract and construction contract. The lender will typically finance up to 80% of this amount. Construction costs are generally categorized as “hard costs” and “soft costs.” The materials and labor are hard costs and things like design plans, architectural drawings, engineering fees, permits, etc. are soft costs. Some soft costs can be financed if they are included into the construction contract.

The borrower may need the proceeds from the sale of their current home to help with the down payment on their new home. If that’s the case they’ll need to sell before they close their construction to permanent mortgage. In addition to the down payment the borrower will need money for closing costs and reserves. With only one loan needed for both construction and permanent mortgage, closing costs are much less than when two separate loans are used to finance the project.

The borrower must also have additional funds on hand to cover any potential cost overruns and may need reserves to cover certain housing expenses during the construction phase. The reserve requirements depend on the transaction and are calculated by the lender before the loan is approved so the borrower is prepared upfront for what is needed. Building a new home or renovating an existing one is a complex process. A one-time close Construction to Permanent mortgage makes the financing simple. The borrower can focus their energy and time on their project with peace of mind knowing both the construction financing and the mortgage are approved, the rate is set and the details for financing each stage from start to finish has been worked out ahead of time.


“Possession make you rich? I don’t have that type of richness. My richness is life, forever” Bob Marley


Arthur Aranda • NMLS #1042093
Construction & Renovation Loans
New Jersey, New York, Connecticut
201-741-1537 talk/text


Networking…

Interested in creating more opportunities through LinkedIn? If yes, then let’s work together by “networking” through LinkedIn!

How Does a Construction to Permanent Mortgage Work?


  • A Construction-to-Permanent “one time close” mortgage loan involves only one application and one closing that covers both the construction phase and the permanent mortgage and has one rate set for both.
  • The construction phase of the loan has interest-only payments. The bank will set up a disbursement schedule which are the payments made to your builder as the work gets completed.
  • An initial loan disbursement is made at closing if you are also purchasing the property (land or a knock-down) on which to build.
  • If you have a loan on the property that you’re building on, the first disbursement of the construction loan will pay-off that loan before construction starts.
  • When the construction phase is complete the construction loan converts over to a permanent fixed-rate mortgage.



Contact Arthur
LinkedIn.com/in/arthuranda
201-741-1537 talk/text
Prospect Street Leonia, New Jersey 07605