Construction Loans
If you can't find the house you want, it's time to think of construction. Does that sound challenging ? Not when you have Ignite Mortgage as your lender.
Our construction team specializes in making the financing hassle-free for you and your home builder so you can focus on what’s important for your new house.
What is a construction loan?
There’s no mystery here. A construction loan is a mortgage to build a home. There are different types, and there are variations, but at its most basic, you take out a construction loan when you want to build rather than buy a home. They are generally short-term loans lasting up to a year, although there are popular loans that transition to a traditional mortgage once construction is complete. Some loans also allow you to finance your land purchase and your construction costs.
How does a construction loan work?
Traditional purchase home loans pay a lump sum at closing to buy the property. Construction loans are a little different. Prior to loan closing, the builder provides an estimate of construction costs and a project timeline. The lender makes payments (called draws) directly to the builder as construction moves forward. The loan is usually interest-only, making it more affordable if you are renting or paying another mortgage during construction.
One-time close construction loan
Also called a construction-to-permanent loan, this mortgage allows you to borrow the funds for your home construction, and then convert to a traditional fixed-rate mortgage. You can include your land purchase, too. One big advantage is that you have only one closing, so you save on closing costs. You’ll also have only one application, which means less paperwork than if you had to take out a separate loan.
VA one-time close
Qualified Veterans and Active Military Personnel might consider VA one-time close loans. These loans don’t require a down payment unless the base loan amount is over $1 million, and borrowers are not required to make any payments until they occupy the new home. While the U.S. Department of Veterans Affairs oversees the financing phase, Ignite Mortgage will be your guide through the construction phase of your new home.
FHA 203 (k) loans
FHA 203(k) loans come in two versions, depending on the type of renovation and the amount you’ll be spending on your project. You can purchase and renovate or refinance and renovate with either loan. The Limited loan is for smaller, non-structural projects costing under $75,000. The Standard loan is for larger cosmetic projects or structural changes from $5,000 and up. One big advantage of an FHA loan is that your down payment can be as low as 3.5% of the total acquisition cost of the property.
One-time close construction loan requirements
Loan requirements vary by the loan program to which you apply. FHA and VA loans, for example, only require a credit score of 620 or above. Conventional loans have the highest credit score – 680 and above – and financial requirements, but buyers with strong credit will be able to secure a loan with as little as a 10% down payment.
If you’re not sure which program is right for you, contact Ignite Mortgage to explore your options.
How do one-time close construction loans work?
One-time close construction loans fund your home construction and convert to traditional mortgages with a term of 15 or 30 years. A one-time close construction loan only involves one set of closing costs. You’ll also be able to draw funds during critical periods of the construction phase, up to a predetermined amount.
You’ll typically have up to a year to complete construction, though this can vary by the lender. At CrossCountry Mortgage, you’ll be able to make interest-only payments during the construction phase. Our team will also provide options to upgrade your loan to ensure that your project stays on track.