New Home Construction Loan
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New home construction loans are used by borrowers when choosing to build a new house. With this type of lending program, financial agreements are designed differently than standardized agreements. A new home construction loan is designed for the unique needs of builders, whether the individual is a licensed contractor or buyer in the market for a newly designed house. New home construction loans allow interest-only payments during the building process with the amount coming due or rolled into a mortgage payment upon the building's completion. If the individual has arranged for the agreement to be construction-to-permanent financing, then there is only one application and one closing which will save a great deal of time. Completion of the agreement will be based upon the legal issue of a certificate of occupancy.
These financial packages are usually based on variable rate loans which allow for the funds to be dispersed on a "draw schedule" basis, according to the stages of construction and the needs of the buyer, contractor and/or the lender. The consumer can also lock in a certain rate on the new home construction loans during the building process, but rate locks are only effective for 30-60 days. If the individual has locked in a loan rate for a new home construction loan and they see that rates decrease during construction, then they will be relieved if the original agreement includes a float-down feature that allows a reduction in the rates, even if this can only be done once. Float-down features may require the consumer to select higher rate agreements, but they are also a safeguard, especially if the rate lock is going to affect the building process.
If a consumer already owns the land and is seeking a new home construction loan, then the lender will expect that the property will be the equity on the agreement. All lenders will want to validate the credit and professional reputation of the builder to ensure that the individual will be working with an experienced, proven, reliable professional. Information about design plans, materials, permits, labor, and land value are all part of the new home construction loan story. General contractors and lenders typically have an associated history that may benefit the consumer. Finding lenders for new home construction loans, who will work on the individuals behalf to help safeguard and finance a new house, is reassuring and a way of "providing for honest things, not only in the sight of the Lord, but also in the sight of men." (2 Corinthians 8:21)
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