The payments on the portfolio program are interest-only on the balance that you owe. You will start out with a relatively small balance and as you draw funds to complete your home, the balance and interest-only payment will increase. Once your home is complete, the payment will switch to a principal and interest payment at the same rate. If you pay your loan down at the end of construction or don’t draw the full amount, the P&I payment will be based on the final loan balance.
Program options are similar to a regular loan. You have the option of a 30-year fixed or a long-term fixed rate ARM for 10, 7 or 5 years. The program and rate are locked in up front before you start construction and close and are the same both during construction and after construction is complete.
This is the huge benefit of the construction loan. The appraised value is based on the completed project after completion of the improvements. There is only one appraisal that is done, and it’s done prior to closing. Keep in mind this also means the appraiser needs the completed plans and budget for the project to do the appraisal. This can be challenging when using a construction loan to purchase a property and close within a typical contract close timeframe (eg 45-60 days). It’s very important to note that the appraiser needs to have the final plans and budget at least 30 days prior to the expected closing date to allow time for the appraisal to be completed, reviewed, and signed off in underwriting.
The down payment you will need will depend on many factors including loan size, credit scores, project cost and appraised value. The land value may even matter at times. The down payment (or equity) can be as little as 10% down. If you have equity in the land or property you already own, that equity will count towards the minimum equity needed.
Your final down payment will be heavily impacted by the appraised value. That number will impact the maximum loan you can get. Depending on your project size, the max loan will generally be 90% to 80% of the appraised value.
For a purchase, your down payment will be the difference of the purchase price plus the cost of construction, minus the max loan.
For a property you already own, the max loan needs to cover the balance on any mortgage you have on your home plus the construction costs. If the max loan covers that amount, you can do your construction loan with NO down payment. If it doesn’t, cover the mortgage payoff plus the construction costs, the difference is your down payment. It is possible to be cashless at closing on a construction loan if you already own the property and already have enough equity.
If you give a deposit to the builder, this will be applied toward the down payment needed. If no down payment is needed on the loan, you may be able to be reimbursed with a check at closing for some or all of the deposits already made.
Solid credit is important. The specific requirements will be different depending on your down payment and loan size. Minimum credit scores are generally 670-720 for this program.
There is no minimum or maximum project size or loan request. However, we do require that borrowers hire a general contractor for their project. Self-builds are generally not allowed but there are limited exceptions to this such as a full-time builder building their own primary residence.
Your builder, or general contractor, is a very important decision. The person or company you choose to build with will dictate how successful your project will be and what type of experience you will have. The builder selection is all yours. Your builder will need to agree to our policies.
We can, however, pass along the name of a builder or two that may be a good fit for you and your project based on the type and location. Let us know if you would like us to do so.
These are not required to close but you must have them by the time you take your first draw after closing.
If you already own the property and have a mortgage on it, the construction loan will roll your current loan into the construction loan.
You can include additional costs on top of the builder’s contract price. “Soft costs” or items outside of the builder’s contract can generally be included in the total construction budget. You can even add a contingency to the budget to cover any overruns. For items outside the builder’s contract, you may need to provide a separate bid.
Specific costs for you will vary depending on a lot of factors. Is it a purchase? Do you own the property already? The title company and project size will also have a big impact. Broadly the closing costs are pretty similar to a regular loan with the addition of inspection fees. Every time your builder requests a draw, an inspector will check to see if the work is done. So check with your potential builder on how many draws they will take on your project. This will help in understanding your closing costs. Additionally, you also have the option to structure the loan in a way where you pay no closing costs (for a higher rate).
We set up the draw period for 12 months regardless of the size of the project. If you need less time, your payments will change from interest-only to principal and interest when your project is complete. If you need more time, we can generally automatically extend it for two months. Additional extensions are on a case-by-case basis. At no time will you have to pay a fee to extend (many lenders do charge fees for this). This could be very costly elsewhere and can happen often on larger projects.
Once the construction phase is over and the final draw is taken, the only change to the loan is from interest-only payments to a principal and interest payment at the same rate. We do not require that the loan be paid off or refinanced. However, once the construction project is complete, we will do a courtesy review of your current program to see if better options are available. If they are, we can simply modify the loan to a different rate or program (eg ARM to fixed) without going through the refinance process. That means no financials, no appraisal, and no closing. We simply lock the rate and send you a one-page modification agreement. There is a flat fee depending on the size of the loan but is much less than the closing costs associated with a full refinance.