New Construction Loans
New construction loans differ from regular purchase money or refinance home mortgages in the way the loan amount is calculated and the way it is structured.
Before calculating the new construction loan amount, we need a basic budget. The main components of construction loans that are included in the budget are:
- Soft costs (architectural plans, engineering and permit fees).
- Hard costs (all the actual physical costs of construction).
- Closing costs (origination and lender fees, title fees, and closing fees).
- Inspection fees.
- Reserves (interest reserve and contingency reserve).
- Existing lot pay off
Regular purchase money or refinance mortgages are based on Loan to Value Ratio (LTV). Where as, construction loans are based on LTV as well as Loan to Cost Ratio. Further more, in a normal mortgage the closing costs are added after calculating the Loan to Value, whereas a construction loan usually includes the closing costs.
Construction Loans are further complicated by the fact that each investor/lender calculates the numbers differently. The problem most applicants of construction loans face is they get an 11th hour call informing them that the final loan amount as calculated by an underwriter is insufficient to meet the borrower’s needs. We will do our best to work with you in avoiding any of these “last minute” unpleasant surprises.
Our familiarity with the guidelines of construction loans offered by most major institutions makes it possible for us to choose the program that best suits you and your project. In fact, since we are approved brokers with all these investors, the cost of the loan to you is generally better than if you had applied directly.
Don’t forget, New Construction Loans are a specialized field. As such, we assign you an expert consultant from the moment you apply. We will work with you from the very beginning until the funding day, making the process smooth and seamless.