When you need a Loan for Construction on your Home.

Financing a construction project can be simple or tricky. By their nature, Construction Loans are all a bit different, and so require a very different type of loan than a traditional mortgage. That's exactly why you want this type of a loan handled by a construction lending specialist instead of a basic mortgage banker or broker. Construction-experienced lenders, like our team here at Lending Correctly, have the desire, knowledge and detail focus to deal effectively with a construction loan.

Story Loans: If you have done any searching for information on residential construction loans, you may a already know that a construction loan is a 'story loan'. In other words, the lender needs to know what exactly you want to accomplish
(e.g. what is your 'story'), before they approve your loan.

In many cases, the story behind the need for a construction loan is simple:

   I want to build a home. I own the land. It will cost $120K. And when it's done, it will be worth $150.
or
   I want to buy this house (for $100K) and restore it (for 50K). When it's done, it will be worth $190K.

In other cases, the story can be much more complex.

Construction Risk: What it comes down too, simple story or complex story, is that many factors are outside the control of the lender.  Will your builder do a good job, on time and under budget?  Are the plans for construction workable? Will the homeowner refrain from making critical plan changes during the building process?  Was enough time allocated to complete the job, in case of bad weather or other emergencies?  Once completed, will the house actually appraise for the amount we expect?  All of these questions add risk to the loan.

Loan Structure: Construction loans are generally very simple in structure.  An amount of money is set aside for the building.  The funds are dispersed in phases, based upon certain milestones setup by the contractor and agreed to by the lender.  During the construction, only interest payments are made to the lender.  These payments are generally very low in comparison to a mortgage payment.  Finally, the construction loan is paid back once the construction is completed.

Simple is structure and short in duration, Construction loans are usually adjustable (variable) rate loans that are priced at the prime rate or some other short term interest rate.  That means if interest rates go up, you will pay more.  Luckily, the duration is short compared to a auto or home loan, so that this interest is a relatively small amount.

Interest Payment: Construction loans are often considered to be expensively priced compared to a mortgage rate, as the rate is often closer to that of a short term loan (think home equity loan or business loan).  These loans are due for repayment as soon as the construction is complete.  Be careful not to extend the repayment period without good reason, as the rate increases and so does the overall cost of the construction loan.  For instance, interest on a $20K loan for 6 months at a 10% rate and using phased payouts, might only be $500.

Loan Payback: So, once the construction is complete, the construction loan is due.  It's time to pay the lender.  While you now own a nice house free and clear, you owe the lender the money it took to construct the house.

Rather than paying off your construction loan, most owners have already planned to convert the money owed into a mortgage on their new home.  This can be done as two separate deals - the construction loan and the mortgage, or combined together from the start.

Construction+Mortgage: Construction loans are now often combined with a permanent mortgage in a loan type called 'One time close' or 'Construction-to-Permanent'. This type of arrangement automatically converts to a mortgage when the building phase is complete.  Doing this can save time and money, but also needs to be thought through carefully.

With a complex Construction-to-Permanent loan, an unscrupulous lender could give you a good deal on the construction financing, but then put you into an expensive mortgage unsuited for your needs.  Here again is a reason to use a lender that understands both construction and mortgages - like us at Lending Correctly.

Our specially is lending direct to current and future homeowners, where we can support you in all aspects of the construction and lending process.

We do not generally work with investors or 'flippers', who are looking to improve a home and then quickly sell it off. 

If you are not planning on staying in your home for at least 36 months, another lender may be a better match for you.

New Build loans are complete houses built from scratch.  Also referred to as 'stick-builds'.

New Build loans are generally only for actual construction, though the land lot purchase may also be included in some cases.  Separate Land Lot loans are an entirely different creature.

But whether you own the land or we help you purchase it, the final finished value is used to determine the maximum loan amount and the minimum down payment required.  We will help you each step of the way, providing you as much or as little guidance as you require.

Since building a complete house can cost a lot of money, New Build loans are generally larger than remodeling loans.  The financial situation of most customers building a new home is such that they will need to convert the construction loan into a new mortgage loan upon completion.  One way to make this process easier is to use a Construction-to-Permanent loan, also known as a One Time Close or OTC.

Our mortgage bankers have construction management experience to assist you in make this process smooth and enjoyable.

To remodel means to make over in structure or style.  A remodeling loan can be used to expand your home or make the existing space and structure more appealing to you. 

We refer to remodeling loans as any loan for changes to a home that is currently occupied or capable of occupation.  Larger remodeling jobs are sometimes called renovation projects.

Remodeling loans are our most popular construction loan product. Keep your existing home in an area you love and make it better. Add a room, change a space, redo your flooring.  Your house can evolve and change with your lifestyle and your personal needs.  Since we use the completed value of your home, your out of pocket expenses can be minimal, especially if you are adding value with your remodeling.

The cost to you of a remodeling project will NOT likely lead to a dollar-for-dollar increase in value of your home, even if you do all the work yourself.

A remodeling project generally only adds value to a homes' appraisal value by increasing functionality. So, if you are looking to increase the value of your home, think in terms of adding new space, adding new appraisable features, or converting your existing space into a space with higher value.

Rehab loans, short for rehabilitation, are loans for converting an uninhabited space into a habitable home.

If you can see through the cracked plaster, squeaky floors and an leaky roof, so will we.  Rehab for fun or profit - homes that require a Restoration Plus loan can usually be purchased at a great price.

One type of Rehab loan we offer is a Section 203k rehab mortgage.  A 203k loan will allow you to purchase or refinance the home.  Included in the loan amount can be funds for making repairs/improvements, a contingency fund, and closing costs.

203k Rehab loans can a fixed or adjustable-rate mortgage from a HUD-approved lender.  Normal down payment requirement is approximately 3% of the home acquisition and repair costs.

Other type of Rehab loans are also available.  Since we can work from the completed value of the property to determine loan amounts, you can not only restore a property to its former glory, but also bring it to modern standards. 
You can even add an addition if you like, as we can make these loans very unique to the situation.

Stated income loans allow many families the ability to own homes when they wouldn't ordinarily qualify for a conforming loan. Rather than needing to provide proof of 2+ years on the job with a good salary, Stated Income loans allow the borrower the ability to State, without proof, what they believe their current and future income to be. Asset, Employment, and Ratio requirements may still apply to the loans.

Stated income loans come in a variety of loan packages, some of the most prevalent being:

SIVA: Stated income, verified assets. Requires Bank statements, to prove you can pay the first couple months payment, and a decent credit score.

Lending Correctly does NOT offer NINA or No-Ratio loan types.

One Time Close means that with one construction loan application, one loan qualification, and one loan closing, you have all of the financing you need to build your new house and move in.  You are covering the costs of the construction with your commitment to pay back those funds in the form of a mortgage.  You receive all the financing you need—a construction loan to build your home and a permanent mortgage when construction is complete.

A big added benefit of OTC is that you only pay one set of closing costs because the transaction is all completed at the same time.

With a One Time Close, there are no payments during the construction phase - this is taken care of with an interest reserve fund setup as part of the overall transaction.  Spend your time time focusing on your new home construction project.