One-Time Construction Loan Close On New Construction Homes


One-Time Construction Loan Close On New Construction Homes

This BLOG On One-Time Construction Loan Close On New Construction Homes Was PUBLISHED On March 13th, 2019

One-time close blog

If you’re in the market for construction to permanent loan, chances are you’ve heard of the nightmare stories associated with this process.

  •  Many lenders shy away from doing One-Time Construction Loan Close construction to permanent mortgages
  • Many lenders who do offer them have no idea what they’re doing
  • This process can be strenuous as there are a lot of moving parts
  • That is why Gustan Cho Associates is excited to introduce our One-Time Construction Loan Close construction to permanent loan
  • Not only does this loan program save you time and money, but it also saves you the headache and stress of requalifying after the construction of the new home!

In this article, we will cover our new One-Time Construction Loan Close Mortgage Program. We will discuss this program in detail and the few different ways to utilize the One-Time Construction Loan Close Program.

What Is One-Time Construction Loan Close

What is construction to permanent loan?

  • This is a mortgage product that allows you to finance the construction, lot purchase, and permanent mortgage of a new home, all in one single loan
  • The majority of construction to permanent mortgages is a two-step process
  • You must qualify before the construction and then re-qualified once the home is permitted
  • This can create a handful of problems when it is time to requalify

That is not the case with the new program we will discuss in detail in this article.

Types Of Homes Eligible For One-Time Construction Loan Close

What types of homes are eligible for this construction to a permanent mortgage?

  • This loan product can be used for manufactured, modular, and stick-built properties
  • Ineligible properties: Single-wide manufactured homes, condominiums, NO MULTI-UNIT HOMES, multiple homes on one lot, niche homes (Kit homes, log homes, bamboo homes, metal homes, tiny homes, storage container homes, and any non-traditional construction types)

Loan Programs Available On One-Time Construction Loan Close

What mortgage programs are available for construction to permanent loan? At this time, Gustan Cho Associates at Loan Cabin Inc. offers this program for FHA, VA and USDA loans only.

  • Down payment requirements are the same buying an existing home (FHA=3.5%, VA= 0%, USDA= 0%)
  • Debt-to-income ratios are determined by AUS, see our AUS BLOG for more information
  • The loan qualifications are very similar to your everyday FHA, VA, and USDA mortgages

Minimum Credit Scores Required On One-Time Construction Loan Close Mortgages

What is the minimum qualifying credit score for construction to permanent mortgage? To utilize this program, you must have a minimum score of 620, regardless of using FHA, VA, or USDA.

  • What about the land for the permanent structure?
  • The land can be purchased or given in many different ways
  • You may purchase the land simultaneously from the builder or through a third party, the land may be gifted, or you may already own the land
  • If you have equity in the land you own, that equity may be used as part of your down payment

Can Sellers Concessions Be Used On One-Time Construction Loan Close

Can you use seller concessions for construction to permanent loan?

  • The answer is yes, you may utilize this loan in a way where you are not coming out of pocket any money
  • For example, utilizing an FHA loan, you can receive up to 6% and seller concessions
  • If you get the full 6% of concessions from the builder, you may not need to come out of pocket with much money for closing costs
  • The 3.5% down payment will need to be required

Keep in mind we must still be verifying you have 3.5% in verifiable assets.

Which Builders Can You Hire On One-Time Construction Loan Close Mortgages

Who is the builder?

  • You must use a certified and licensed contractor to utilize this product
  • The builder must act as the general contractor as they will be responsible for “turn-key” completion of the home and all site improvements
  • No“self-help” is allowed
  • The borrower cannot be responsible or perform any of the construction or hire any subcontractors
  • Similar to an FHA 203k loan
  • The buyer may not have any relationships with the contractors or builders

This must remain an arm’s length transaction between all parties.

How Does One-Time Construction Loan Close Mortgages Work

How does the one-time closing work?

  •  There will be a flat administration fee which covers all the construction-related fees and interim construction interest
  • The fee is charged directly to the builder, not the borrower
  • Therefore will be included in the contract or sales price
  • There are two options for the builder at this point, they may take a draw or choose not to have a draw during the construction phase

Builder Draws On One-Time Construction Loan Close Mortgages

If the builder decides to use a draw, they will be paid periodically throughout the construction process

  • At closing, the land seller or the mortgage will be paid off / funded
  • This option requires a project review at the end
  • If the builder decides not to use a draw, this will streamline the process
  • The builder has agreed to no interim construction draws throughout the process
  • Builders will receive all their monies at one time once the home is completed
  • This is the easier option for you as there are no third parties involved
  • This will also have a lower administration fee

Fees And Costs On One-Time Construction Loan Close Mortgage Loans

What does the administration fee include?

  • Construction administration fee
  • Construction underwriting fee
  • Construction closing coordination fee
  • Interim construction interest
  • Inspection fee
  • Draw fee(s)
  • Title updates

* Reminder that this fee is charged directly to the builder and therefore is included in the total sales price.

Types Of Home Buyers Benefiting From One-Time Construction Loan Close Mortgages

Who is this construction to permanent loan design for?

  • While many of our clients can use this program, this program is not designed for any borrower or builder looking to build a million-dollar custom home when having perfect credit and significant down payment
  • This program is targeted for first-time homebuyers as well as repeat homebuyers looking for an affordable option to build a new home when the low inventory of preexisting homes makes it hard to find something that is right for you and your family

If you decide to utilize this construction to a permanent loan with Gustan Cho Associates at Loan Cabin, we must verify and register the builder. We will send the builder a questionnaire to complete. The builder will provide documentation verifying we are able to use them to complete the construction. If they choose the no draw option, we must verify their assets.

Closing Process On One-Time Construction Loan Close Mortgages

What happens at the closing?

  • Regardless of the builder choosing to take a draw or not, the land seller or the mortgage will be paid or funded
  • This loan will close and fund before the construction starts
  • After closing, the construction will begin immediately
  • After the closing, the administrator will contact the builder with a welcome letter and provide the first draw if choosing the draw option

They are now ready to enter the construction phase.

Mortgage Process During Construction Phase 

What happens during the construction phase?

  • The administration fee will cover the coordination with construction phases with the builder
  • The administrator will be advised when the project is complete and order the final inspection
  • At this time the appraiser will go back out and make sure everything was completed properly
  • The builder is required to provide a placement survey which will be sent to the title company
  • At this point, the administrator will send the final funds to the builder and they are now paid in full
  • Once all funds have been disbursed, the loan is 100% complete
  • The borrowers are now able to move in and start making their first payments

Uniqueness Of One-Time Construction Loan Close Mortgages

Why is this program so unique?  

  • This allows borrowers to build a new home with a low-down payment option
  • The borrowers are not required to make a payment during the construction phase!!
  • What an amazing program, you can move into a brand-new home before you start making your payments

The Team at Gustan Cho Associates at Loan Cabin Inc. are excited to roll out this program. New construction can be a headache, butwe are here to make the process go as smoothly as possible. There will be questions regarding the information in this blog. Please reach out to Mike Gracz, the construction to permanent loan expect from the Gustan Cho Associates at Loan Cabin. We can be reached 7 days a week, mornings or evenings. If email is easier for you, please send an email mgracz@gustancho.com. We look forward to helping you BUILD YOURBAND NEW HOME.

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