Construction Loans

Variable Rate Loans

Term:  Up to 18 months: The house must be finished.

  • Certificate of occupancy issued.
  • Notice of completion recorded by the 16th month so the last draw to builder can be released.
  • Final appraisal done
  • Preliminary title report updated and modification documents prepared, executed, and recorded by the 18th month.

Value:  The loan to value is based on the lessor of two (2) appraisals – or acquisition cost plus cost to construct if the property is owned less than 12 months (two (2) appraisals also required). We lend up to 75% LTV with no “cash back to borrower” if the loan is $5,000,000 or less.

Rate: Prime + 1.5%

Payment: Interest Only during construction. The payment is calculated from the amount of funds that have been disbursed.

Steps:
– We have the licensed contractor complete an application, supply copy of his general contractors
– License, cost to construct, plans, signed contract between owners and builder and copy of his general liability insurance for approval
– The appraisal is prepared from plans, cost to construct breakdown, and site inspection.
– There can be no other financing on the property during construction so the existing mortgage will be paid off through escrow.
– Upon completion the bank will do 1 final appraisal to confirm home is finished per specs and plans and give updated value.
– The loan is locked into final rate upon completion of the home and the modification documents are sent for signature and recording to convert to a conventional mortgage.

Draws: System is set up for 1 draw a month. The draw system requires the borrowers and the builder sign the draw requests. The bank has a contracted inspector do a monthly site inspection to confirm with photos the status of the progress of the construction. The title company also does a monthly update with each draw to ensure there are no mechanics liens during construction.

Modification: Once the home is finished, the loan then modifies into the loan program that the client had originally chosen: 30 year amortization rate fixed for the first 3, 5, 7, 10, or 15 years, then after fixed rate period becomes an annual ARM tied to LIBOR with margin of 2.25%.

*There is no prepayment penalty on this 0 point loan.

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