Building Your Dream Home With A Construction Home Loan

Most construction home loans are completed through what is called a One Time Close or OTC for short. What the OTC does for a borrower is save them a ton of money. The lot loan, construction loan, and permanent financing are all rolled up into one loan, one application, and one set of fees.

The lot loan and construction home loan interest rates are typically based off of the prime interest rate. The payments during the construction process are normally interest only and many times you have the option of rolling these payments into the loan so you have no monthly payments during the construction process.

Another really cool feature of the construction home loan is that you are able to choose what ever permanent financing you want. 30 year fixed, 15 year fixed, ARM, Balloon payment, etc.

You can also lock in your interest rate for the permanent financing before or after the loan has been funded. Normally it is always a better idea to wait until the loan is funded. Many lenders will charge a 1% fee to lock the permanent financing before the construction home loan is funded.

Most lenders offer a 12 month construction period. As well as a variety of draw schedules. If the construction is not completed with in the time limits extensions are typically available.

Besides the normal documents needed to process your loan you will also need the following:

Set of “Plans and Specifications”

C.C. & R’s (if applicable)

Contract between borrower and builder/contractor

Cost Break Down

One of the main benefits of getting a construction home loan is the fact that the costs and interest are tax deductible.(consult with you tax advisor) Second is the fact that the builder is not shouldering the costs of a loan for the construction. This reduces the overall costs of the home, thus reducing the purchase price.

I personally do not know of any construction home loans that do not require a down payment. The majority of construction loans can be done with as little as 20% down. In fact you may not even need the 20% down if you already own the property and there is significant equity in the land.

As far as where to get construction financing your search should be focused on local banks. Fewer and fewer mortgage brokers are doing these types of loans as sources for them have dried up.