There are three fundamental ways to finance a New Construction home project:
|Posted: 24 June 2005 at 10:11am | IP Logged
Single-close CTP: This is the most common and cost-efficient construction loan option. The single-close allows homeowners to qualify and close with one application - one set of fees - one closing - one loan. This loan provides funds that are disbursed as needed during the construction phase and then converts to a permanent, fully-amortized mortgage at time of completion. The loan requires 'interest-only' payments be made on the monies disbursed during the construction phase. Most custom builders prefer this type of loan since the buyer, not the builder, finances the cost of construction. A single-close is typically the only choice when purchasing a modular home. Many lenders offer single-close CTP loans but few specialize in it.
- Single-close Construction-to-Permanent loan (CTP)
- Double-close Construction-to-Permanent loan (CTP)
- Traditional Construction "end loan"
Double-close CTP: This is the traditional method of construction financing that many lenders still offer today. A double-close CTP loan provides two separate loans: an interim 'interest-only' construction phase loan to build the home and then a new permanent, fully-amortized mortgage when the home is completed. Two applications - two sets of fees - two closings - two loans. There are few advantages to this loan type simply because it is more expensive than a single-close CTP loan.
Construction End-loan: A construction end-loan is simply a permanent mortgage that does not have a construction phase feature. It provides the buyer a traditional mortgage to purchase a completed new construction home. This option typically applies in subdivisions, condominiums and planned unit developments where the Builder or Developer has obtained the construction financing to complete the project and the buyer simply needs to obtain an end loan.
There are other construction-category loan types available for specific needs:
- Lot Loan - for the purchase of open land or a building lot
- Bridge Loan - to access equity in your current home for down payment on your new construction loan
FHA Home Improvement Loan - FHA Title 1
The Federal Housing Administration (FHA) makes it easier for consumers to obtain affordable home improvement loans by allowing loans up to $25,000 without any equity in the home. In otherwords, the loan can exceed the value of the home.
The Title I program insures loans to finance the light or moderate rehabilitation of properties, as well as the construction of nonresidential buildings on the property. This program may be used to insure such loans for up to 20 years on either single- or multifamily properties. The maximum loan amount is $25,000 for improving a single-family home or for improving or building a nonresidential structure.
For improving a multifamily structure, the maximum loan amount is $12,000 per family unit, not to exceed a total of $60,000 for the structure. These are fixed-rate loans.
Eligible borrowers include the owner of the property to be improved, the person leasing the property (provided that the lease will extend at least 6 months beyond the date when the loan must be repaid), or someone purchasing the property under a land installment contract.
Title I loans may be used to finance permanent property improvements that protect or improve the basic livability or utility of the property--including manufactured homes, single-family and multifamily homes, nonresidential structures, and the preservation of historic homes. The loans can also be used for fire safety equipment.