“There are many instances in which
loan financing would be a viable
solution for borrowers.”
Construction contingencies (
usually around 5 percent to 7 percent)
will be added to the loan, just in case
of unforeseen costs that could arise
during building. After these steps,
the loan goes through closing, and
construction begins soon after on
the chosen lot.
Another feature of the single-close
Loan in action
construction-to-permanent loan is that
borrowers enjoy the ability to include
construction-period interest — inter-
est on the construction loan — in the
total loan amount. That means borrow-
ers do not have to be saddled with two
house payments during construction,
especially welcome for transactions
involving higher loan-to-value ratios
and for first-time homeowners.
Recently, a loan officer had a client who
wanted to build a new home and would
not have a sizable downpayment until
the equity was released from their current home. Their dilemma?
Put their current house on the market and risk selling to a buyer who
needed to move in before their new
house was ready. Additionally, they
would likely have to borrow the equity
for a downpayment on the new home
because their existing equity was tied
up in their existing home.
The likely outcome would be two
moves and extra expenses with the
bridge loan. The solution to the problem is to structure a conventional,
loan with a 95 percent loan-to-value
ratio. That avoids the necessity of two
moves and extra loan-closing expenses
for a bridge loan.
In this case, the builder released the
lot to the customer and commenced
construction. That is something the
builder normally would not have done
without a 20 percent downpayment.
In another case, a couple had enough
income to purchase a $500,000 home
with pre-approval. They were unsuccessful in their search for a house, however, because they had many requirements to suit their needs.
Their originator suggested a single-close construction-to-permanent loan
for a new home, and they were able to
successfully find a lot, contract with a
builder and design a home that met their
needs. In bringing their own financing
to the table during negotiations, the
couple was able to secure enough credit
to add a pool to their dream house, which
is something they had not originally
planned to do until three to five years
after moving into the home.
There are many instances in which
loan financing would be a viable solution for borrowers, specifically if they
are building a new home on a vacant
lot and are in search of financing.
Borrowers without lot of cash available for a downpayment or who are
having trouble finding an available
home that suits their needs also can
benefit from this option. n
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