Construction Loans, Home Improvement Financing
A residential construction loan is a relatively short term loan, which allows a property owner, owner builder, and/or a professional homebuilder to borrow the money needed to build a new house. While specific terms for any given loan will vary according to the project, construction loans normally provide for interest-only payments, at a higher rate than a long term mortgage, during the construction period. Funds are distributed to the owner or builder during the coarse of the project according to a pre-defined draw schedule, with interest being charged on the portion of money the lender has disbursed to date. Draws are tied to either a percentage of completion (when 10 percent of the project is complete, 10 percent of the loan is released) or upon the completion of certain milestones (when the foundation is complete and a location survey has been performed, the value of that work is released, when the roof is complete and all windows and doors have been installed, the funds associated with that milestone can be drawn down). The final construction draw is normally contingent upon a certificate of use and occupancy being issued by the local government building inspection department.
Once the project is complete and the full amount of the loan has been drawn down, the construction loan becomes due in full (a typical scenario for professional builders who use the proceeds of a home sale to pay off the construction loan). In the case of a construction-permanent loan, which is more common with homeowners or owner/builders, the short term construction loan would convert to a conventional long term, fixed rate or adjustable rate mortgage.
Since lenders will be loaning money to build something that doesn’t yet exist, they will want to have some reasonable assurances that the person responsible for the project knows what he or she is doing and that they will be able to complete the project on time and within budget. So, expect to be able to provide your lending institution with a full set of house plans and specifications, a comprehensive budget, a realistic construction schedule, and some type of proof that you are qualified to manage the project yourself or that you will be working with, or have access to, a professional builder who is qualified to finish project should you not be able to do so.
Check Your Credit Rating
Chances are fairly good that you have never seen a copy of your credit report. Yet, mortgage companies, credit card companies, apartment managers, car dealers, and many other lending institutions regularly use the information found in these reports to decide whether or not doing business with you represents an acceptable risk. It is a good idea to know what these lenders will see before they make a decision about your loan, yet too many “inquiries” on your report may lower your credit rating.
Bad debts, or errors that report bad debts, may appear on your record for approximately seven years from the filing date. If you have been turned down for a loan based upon a report from a Credit Reporting Agency (CRA), you may have a right to receive a free or low cost copy of that report from the CRA under the Fair Credit Reporting Act. If you live in Colorado, Georgia, Maryland, Massachusetts, New Jersey, Vermont — and probably other states by the time this is read — you are eligible by law to recieve a free copy of your credit report.
Federal Trade Commission Bureau of Consumer Protection – “enforces credit laws that protect your right to obtain, use, and maintain credit. These laws do not guarantee that everyone will receive credit. Instead, the credit laws protect your rights by requiring businesses to give all consumers a fair and equal opportunity to receive credit and to resolve disputes over credit errors.” Here is a list of credit & loan publications that should help you better understand your rights as a consumer.
HomePath.com – this site, brought to you by the Federal National Mortgage Association, better known as Fannie Mae, used to be primarily a step-by-step guide through the entire mortgage process. Today, the HomePath site still contains a good bit of helpful home buying and financing information, however it is targeted toward promoting the sale, or resale, of Fannie Mae’s foreclosed properties.
Housing – Financing & Sales – This page, which is part of the United States federal government Consumer Information Center Web site in Pueblo, Colorado, contains links to information about adjustable rate mortgages, mortgage lock-ins, refinancing, a HUD home buying guide, settlement costs, and dozens of other home buying and maintenance publications.
Buying a Home – a publication from the U.S. Department of Housing & Urban Development, which contains answers to common questions from first-time homebuyers, including a list of nine steps to buying a home, information about HUD, FHA, and VA loans.
VA Mortgage Servicing Assistance – The organization within the US Department of Veterans Affairs that administers the home loan program, which helps “veterans and active duty personnel purchase and retain homes in recognition of their service to the Nation.” Available information includes VA Home Loan pamphlets, frequently asked questions about the VA loan program, specially adapted housing for disabled veterans, and addresses, telephone numbers and Web sites of the Department of Veterans Affairs Regional Loan Centers.
VA Specially Adaptive Housing Grants for Disabled Veterans and Wounded Warriors – A short YouTube video describing grants available to help purchase or construct an “adapted” home or to help modify an existing home to include universal design features that help with daily living needs.