Home Christian Construction Financing
Home Christian construction financing can be a tricky process, especially if the future homeowner is contracting out all the work himself. The financing of a house yet to be put together is a far different animal than securing the loan of an already existing property. A number of things need to be understood in order for the entire project to go smoothly, at least financially. The discussion regarding home construction financing needs to begin with a builder financed construction loan. "Except the Lord build the house, they labour in vain that build it; except the Lord keep the city, the watchman waketh but in vain." (Psalm 127:1)
Home construction financing for a new property can be secured in one of three ways: the builder finances the construction and after completion the buyer secures a permanent mortgage or the buyer gets a construction loan and after completion gets a permanent mortgage loan, or thirdly, the buyer gets a single loan covering both the constructions phase and the after completion long term residency of the builder/buyer. Each of these approaches has its own set of advantages and disadvantages. With all of the things can go wrong with sub-contractors and the difficulties of getting permits and other paperwork completed, anyone taking on the task of being their own contractor is flying in the dark without instruments when home construction financing is not understood. Because so much can go wrong, many of those wishing to build a new residence choose a builder who will take care of the entire home constructing financing themselves. Of course, in this case will add some cost to the final home mortgage lending agreement the buyers must secure, however the headaches are much less.
Perhaps someone chooses to have a construction loan for the period of building and then a permanent loan from another lender which pays off the first loan. This means that the buyer will have to pay two sets of closing costs which could be very expensive. Home construction financing loans usually have the length of about six months to a year and will be adjustable in nature, carrying a higher rate than a permanent ARM. Since a general contractor pays out accrued expenses as they are incurred, the buyer of an under constructed house will have to keep track of all work being done and do QC work before any bills are approved. Multiply that approval for every sub contractor and a great deal of time can be experienced in both the management of the actual construction and the approval of every single expense.
There is also the combination loan which may make home construction financing a fairly simple process, but there may be some pitfalls to this option also. First, in most cases, a down payment will be required which can be met by either cash or a land equity arrangement. In the case of the land equity option, the property will more than likely have to be free and clear of any liens. Additionally, the buyer will have to have a high enough credit score to qualify, meaning that in many lenders' cases a 640 or above will be needed to secure this combination loan. Additionally, the buyer will have to have a debt to income ratio of forty percent or less. This ratio is established by looking at monthly income versus the amount of debt repayment that goes out each month, including the combination loan being considered. The ratio typically will have to be lower than forty percent.
One of the issues regarding this combination home construction and permanent mortgage type of home construction financing is that the buyer cannot be the general contractor. This is a safeguard to prevent a novice who has no idea what building is all about from taking a lending institution's money and creating a pile of lumber and concrete that has no value. IN fact, for the construction/permanent lending agreement, the contractor will have to be a reputable builder approved by the lending institution. If the lender does not have flexible schedules for the contractor to draw from, the agreement will probably not be reached. For example, if the contractor likes to pay sub contractors on the first and third Wednesdays of the month and the lender is only willing to have a draw once a month on the last Friday, that can be a quick deal breaker.
Perhaps one of the most exciting things a person, couple or family can do is design and then build their dream home and have the opportunity to live in the place of their own conception through the aid of home construction financing. Sometimes months or years of planning are needed before such a project can be financed and undertaken and once occupancy is taken, a quiet evening on the patio to drink in the reality is often needed to process all that has happened. But way too often, home owners who have built their own dream home make the same mistake as young people getting married. It is not uncommon for a young couple to take a year or more of countless hours planning the cake and the menu and the place of the reception and the colors and the theme and the location of the church and on and on, and spend almost no time planning how the marriage will guided by spiritual truth. Similarly, a home builder/buyer can take years to plan how to build a dream house, but not one minute on how to die. People often live as if planet earth existence is forever, when in fact it is like a morning fog that it very quickly burned off and gone. Be afraid to die not if you haven't done wonderful things for humanity, but rather if Jesus Christ is not supreme in your life.
Home Christian Building FinancingFor many new and seasoned builders, home building financing can be a headache. Signing bank loans and down payments, paying various contractors, and purchasing endless materials create a unique financial situation that is often frustrating and difficult to manage. But securing the money to build a house does not have to be complicated. Banks and lenders now offer many different programs and options to meet the distinctive needs of a residential builder. By knowing the available choices, individuals who wish to build their own house or one to rent or resell can be prepared for the process ahead.
Unlike other financial investments, home building financing is divided into two parts: a construction line and a residential mortgage. The construction line loan covers materials to actually build the home. This agreement includes contractors, suppliers and materials during the construction period of the project. Proof of expense must be verified before the lender will release funds. Interest rates are higher than residential mortgage loans and repayment is due 30 to 60 days within completion of the house. Construction lines usually are tied to a fixed draw schedule a certain amount of cash allowed for each phase of the project. Lenders will charge extra fees if the builder overspends the amount, so builders must budget appropriately. Build in a cushion for each phase in case expenses are greater than anticipated.
The second part of home building financing, residential mortgages, usually pay off the construction line once the house is completed. Most often, these loans must be determined at the same time as the construction line and come with the same options as any other home mortgage: conventional or non-conventional loans or fixed rates versus adjustable rates. Interest rates are lower and like other mortgages, repayment is spread out over a longer period of time such as 20 or 30 years. Builders have the option to use the same company for both loans or they can choose to use different lenders. However, although this was the preferred method through the 1980s, using separate companies or even separate loans within the same institution has its drawbacks. Builders have to pay double the closing costs, provide more money up front and often have to start making payments during the construction of the home.
Some financial institutions have begun to change and now offer combined home building financing options to attract builders with special incentives. One popular offer, the construction to permanent loan, combines both the construction line and the residential mortgage line into one easy loan package. The loan still incorporates the two phases, but only one closing is required. And the only interest payments are required during the construction phase of the project. The builder saves in time, attorney fees and taxes. However, interest rates for these types of loans tend to be higher.
Other lendors offer an owner-builder program, where the owner actually takes over the roles of contractor. In the past, this option has mainly been used by people who had lower credit scores, But today, even middle-income people building their own houses find this option appealing. Individuals looking for home building financing options have more control and do much of the work themselves, saving thousands of dollars. Lenders become more than just a banker. They often provide advice in contracting, building and setting up a mortgage plan. Plus, these loans will cover almost all costs involved from purchasing land and materials to closing costs and fees. Most financial institutions that offer this plan wont require a down payment either, unlike others who may require 5% to 20% of the loan value.
A few companies even provide green mortgages, which offer rebates and extra incentives for builders who maximize energy-efficiency by placing in solar panels or eliminating carbon footprints. However, the cost of these added features are usually more costly than current building methods and have to meet fairly stringent guidelines. Future energy savings may justify the expense. The individual builder must decide and weigh the options. With all the various packages offered today, it is always important to shop around for the best deal.
With any type of financing, builders must plan efficiently. Start with a sufficient start-up budget for any home building financing project. Costs can range anywhere from $5,000 to $10,000 depending on the scope of the project. Down payments must also be taken into consideration. Lenders usually require a minimum of 20% as a security on a loan. This can include cash, equities, or other project. The good news is that often the start-up budget is considered part of the down payment. Cushion the rest of the construction line for extra or increased expenses. And as in all loan applications, proper documentation of employment, credit history, and current financial assets must be provided. But with home building financing, builders must also include construction specifications of their house, cost break down and the purchase contract or title of the land where the construction will take place.
Building a house is not easy, but it is worth the cost to have a place to call home. Behold, now the day draweth toward evening, I pray you tarry all night: behold, the day groweth to an end, lodge here, that thine heart may be merry; and to morrow get you early on your way, that thou mayest go home (Judges 19:9). When the contractors are finished and the supplies all used, the Christian builder has a house he can be proud of for years to come. And if he selected the right home building financing option for him, then the payments wont be a burden financially.