Home Construction & Renovation – August

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


Product of Construction-to-permanent financing.
New construction, as completed, with a Construction to Permanent mortgage!

A Realtors’ Quick Guide to a Construction to Permanent Mortgage (3 min read)

When you combine a permanent fixed rate mortgage with a short term home construction loan you get a hybrid loan package that may fit your client’s needs perfectly. A Construction-Permanent Mortgage can finance both a home purchase and any construction or renovation costs, including a total knock-down. For homes already owned, equity created by the renovation can be applied to the total equity needed to finance the loan, effectively creating a no-down payment option. During the 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 the borrower and builder will know how the payments will be made during construction. When the construction is done the interest-only loan converts to an amortizing 30 year fixed rate mortgage.

The rate on a Construction to Permanent mortgage can be locked at application for 60 days or longer if needed. The rate stays the same when the loan converts to a permanent mortgage.

To apply, your client will need a 1) signed construction contract & cost breakdown with the contractor, 2) a signed property purchase contract and 3) a set of building specs & plans. Permits are not needed to apply but will be required before construction may begin.

Because of the lengthy time frame involved with construction, up to a year 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. If the borrower cannot qualify this way, they 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 construction-to permanent mortgage can cover up to 80% of this amount. Construction costs are generally categorized as “hard costs” and “soft costs.” Construction 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 cost breakdown.

The borrower may need the proceeds from the sale of their current home to help with their down payment on the new home. If that’s the case they’ll need to sell before they close on their construction to permanent mortgage. In addition to the down payment the borrower may need money for closing costs. 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. During the pre-qualifying interview the borrower is prepared upfront for what is needed.

Building a new home or doing a major renovation can be a complex process. A one-time close Construction to Permanent mortgage makes the financing simple. Your client 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.


“The secret to staying young is to live honestly, eat slowly, and lie about your age.” – Lucille Ball


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!

Home Construction & Renovation – May

These words (except for quotes) are my views and opinions gathered from my experience in home construction finance and do not represent those of my employer.


Teardown & Rebuild…Its Easier Than you Think

Demolition of property for nmew construction
Tearing down to rebuild

A house that may be a good candidate for a teardown is in a desirable location but below the standards of the other homes in the neighborhood. It may be much smaller than average, have serious structural problems, require too many repairs, or have outdated heating, cooling, plumbing or electrical systems. It tends to be priced below the average for the neighborhood and often remains unsold for a longer period, unless it is actively marketing as a prospective teardown.

A Rule of Thumb to help determine if a teardown will support a newly built house is when the value is at two to three times the price of the teardown house at acquisition. For example, if you can buy an older, functionally obsolete house in a good location for $250,000 and a brand new house built on the same lot will support a market value of $500,000 to $750,000, it may be a good teardown candidate.

Once you’ve decided on the neighborhood, contact a real estate agent with experience in teardowns or substantial renovations. Realtors can often recommend potential builders for your project or you can contact the local chapter of the National Association of Home Builders for advice. Some mortgage lenders may also be able to provide a list of approved builders they have worked with on new home construction.




New homes are energy efficient, from the roof, windows, and doors to the heating and cooling system, an important feature for home owners today. They are wired for all the in-home entertainment and modern appliances we use today. The interior layout of a new home is customized for the style of living the home buyer wants for their family. For example, many homes are custom built now for multi-generational living. If these features are important and cannot be attained at a reasonable cost by renovating, then a teardown may be the way to go.

Buying a house in order to tear it down requires planning, some extra homework and some added expense. Demolition costs vary with the size and location of the teardown property, but generally range from $10,000 to $25,000. You may be able to recoup most of the demolition expenses by recycling some of the materials in the teardown by selling the contents or by tax-deductible donations.

Your municipality will require you or your builder to obtain a demolition permit before you start doing anything. You will need to contact the utilities companies to determine when and how to disconnect gas, electric, water services. Check with the fire department to determine what sort of inspections or oversight is required prior to demolition. Local government may also require inspections for toxic materials inside the house, which is a concern if the structure dates back to the 1960s and earlier, when asbestos was commonly used as a construction material in ceilings & duct work.


Can I finance a teardown?

Absolutely yes! Some banks offer mortgage products for new home construction and have a lot of experience lending on teardown projects. One such mortgage product ideally suited to finance a teardown is a construction to permanent mortgage, sometimes called a “one time close” construction to permanent mortgage.

Each construction to permanent mortgage is structured to meet the specific needs of the borrower. A one time close construction to permanent mortgage makes the financing simple. The borrower can focus on their project with peace of mind knowing both the construction financing and the permanent mortgage are approved, the rate is set and all the details for financing each stage from start to finish have been worked out ahead of time.


“The urge to destroy is also a creative urge.” – Pablo Picasso


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


Networking…

Are you interested in the networking possibilities and new business opportunities through social media? If yes, then let’s stay connected!