Construction Loans / Home Loans - Overview
New construction loans work differently than normal home loans because the loan is closed two times-once at the beginning of construction and once after the home is built. In addition, there are criteria that must be met for the new construction loan after the loan has closed initially and there are various disbursement periods instead of one . In addition, there is an Interest Rate lock period after the loan is initially closed that can expire represented by a number of days usually equivalent to one year or less. If your home is not completed within the lock period, your rate may be subject to change, or you could be hit with a late penalty.
Construction Loans / Home Loans - Loan Breakdown & Costs
CONSTRUCTION LOANS APPRAISAL: There are fees for a final appraisal that must be submitted. The normal cost of an appraisal is about $300. However, if the value of home is more than $350,000, this cost can go up some. Each loan situation is different. Therefore your exact costs for an appraisal will need to be quoted.(Contact Us)
CONSTRUCTION LOANS SURVEY: The same as any purchase homeloan, a residential survey must be completed for construction loans. Although the cost usually only about $100 for the purchase of an existing home, the cost is most often between $200-$300 for new construction loans. The survey defines the exact boundaries, dimensions, lot information, legal description, and other valuable information about the property. Any time a property line is changed, a new survey must be completed.(Contact Us)
CONSTRUCTION LOANS DRAWS: There are many disbursements of funds with construction loans. Usually, five or more times a builder will have to submit a form to get a cash disbursement. Each time the form is submitted, an appraiser or one of the lender's inspectors, will have to go out to the location of home to verify that the work has been completed. The cost is usually about $100 per disbursement.(Contact Us)
CONSTRUCTION LOANS LENDER FEES: As with any loan, underwriting is usually time consuming and tedious work. Therefore, the lender covers these costs with underwriting fees. In a normal purchase or refinance, the lenders fees can vary from $0-$1,000 or more. However since there is more work in construction loans, there are more costs. Some lenders will charge an up front percentage on the loan amount (around 1%) in addition to an additional fee for writing up the closing documents twice. These fee are called document prep fees and they vary from lender to lender.(Contact Us)
CONSTRUCTION LOANS SETTLEMENT FEES: One of the differences in construction loans is that you will essentially be closing twice-at the beginning of construction and at the end. Therefore there are extra fees associated with a new construction. The normal settlement fees for a purchase are about $400-$450. With a new construction loan, there is usually an additional $200-$300 fee for the second close.(Contact Us)
OTHER CONSTRUCTION LOANS FEES: As with any normal home loan, there are other fees to cover. Wire fees for transferring funds are about $150, Recording Fees are between $100-$150, Title Insurance which is directly related to the price of the home about .60% of the loan amount, Processing Fees are $300 and other minor fees for express courier service and odds and ends add up to about $150. (Contact Us)
Construction Loans / End Loans
An "End Loan" for construction is just that. It is a one time final loan for the construction project. Basically it is a long term lock that has an expiration date. You can lock 30 days, 60, days, 90, days, 120days, 180 days, 240 days, and sometimes even 360 days or more. However, each term in days has a different interest rate or cost associated with the type of loan, property type, and lock term. The standard rates are usually about 1/2% or 50 basis points higher than the current market interest rate and there is usually an up front fee to lock this in. These loans are normally for the borrower who has worked out an agreement in advance with the construction company or builder to build the home for some undetermined up front down payment with the idea in mind that once the project is complete, the borrower will get a loan to pay off the remainder of the debt owed to the construction company or builder.
Another type of end loan is an end loan with a float down option. This is basically the same type of loan as described above but should the interest rates move down from the time of your locking in, then your rate can move down as well. The bad news is that these type of loans work the reverse way too. This means that should the rates go up-like your probably anticipating anyway, then your rate may float up to a pre determined percentage which is normally about 1/2% or 50 basis points up or down.
In general, these type of loans are really only good if you think that interest rates are on the rise. If you think they are going down it would be much smarter to wait until the project is complete to get the best interest rates possible.
