How To Finance It

Many homebuyers have trouble finding their Dream House in the inventory of homes on the market. An attractive alternative is to build their home from scratch. A Construction/Perm Loan is designed exclusively for new construction. Even though it sounds more complex than the typical mortgage loan, it is a straightforward process.

Unless you are planning to pay cash for your home, the builder will supply you with a list of preferred lenders. These preferred lenders will give you a credit, usually $2,500, against closing costs. The one stipulation is that you must complete the mortgage application within 5 days from the date you signed the contract. It will take approximately one week for your loan to be pre-approved. Delays in financing will push back the start of your new home.

Facts:

A construction loan closes before the actual construction of your home begins.

The permit preparation will begin immediately upon acceptance of the construction agreement

Construction cannot begin until after the initial closing.

All down payments are given at or before the construction loan closing.

The construction lender distributes the funds to the building contractor in draw payments. These draws are distributed according to the percentage of work completed on your home.

Financing:

The only payments made by you during construction are interest payments based on the amount drawn to date on the construction loan. This amount is usually paid monthly.

The interest rate is set by the lender during the construction period and is usually based on the current prime interest rate.

The permanent interest rate is usually locked-in as the house nears completion.

A modification or second closing converts the construction loan into the permanent (mortgage) loan. At this point, principal, plus an escrow for insurance and taxes are added to the monthly payment.

Before the second closing, all bank and building inspections are completed and the buyer is given an orientation walk-through.

At the time of the second closing, the new home has been completed and a Certificate of Occupancy has been issued.

During the construction of your new home, you may receive one or more Notice to Owner or Mechanics Lien. Dont be alarmed. This is a common and necessary document filed by some of the suppliers, vendors and tradesmen working on your home. The construction lender requires waivers for each notice issued and a final waiver at the end of construction. This protects your interests as well as the lenders interest.

During the initial loan application process, you will be asked to review and sign disclosure statements, the Estimated Federal Truth-In-Lending Disclosure Statement and the Good Faith Estimate. The Estimated Federal Truth-In-Lending Disclosure Statement indicates the annual percentage rate (APR), the loan amount, the proposed interest rate and the loan term. The APR is the cost of your loan as a yearly rate and reflects the notes interest rate. The APR will appear as a higher percentage rate because it also includes the estimated prepaid finance charges, including discount points. The interest rate and the APR are not the same. The APR is a tool for consumers in order to compare the total cost of loans.

The Good Faith Estimate provides you with cost estimates of settlement services and other additional charges you will most likely incur. The following are some of the items you will find disclosed in the Good Faith Estimate:

Loan Origination Fee - This is a fee that is based on a percentage of the

loan amount. It is usually 1% to cover the lenders administrative costs.

Discount Points - Each point is equal to 1% of the loan amount. For example, one point on a $100,000 loan equals $1,000. The points serve to raise the lenders yield on the loan.

Application Fee - This charge covers the lenders fee to process your loan application.

Appraisal Fee - This charge is used to obtain a property appraisal in order to determine if the value of the property is sufficient to secure the loan.

Credit Report Fee - This charge is used to obtain your credit report from a credit-reporting agency. It is strongly suggested that you do not take on any additional credit obligations prior to closing on your home as this may affect your credit report and your ability to obtain a mortgage.

Interest Expense Disclosure - This disclosure estimates your interest charge per day. However, the interest you pay will be adjusted based on your actual closing date.

Some fees that are collected at the time of your loan application may not be refundable. These could include the loan application, the appraisal and the credit report fees.

Home Construction Step-By-Step

• Clear lot and build pad or dig for foundation.

• Set foundation forms and install underground plumbing.

• Pour concrete.

• Build exterior walls.

• Install roof.

• Install interior framing and begin plumbing rough-in.

• Install windows and exterior doors.

• Install A/C and heating duct work, electrical wiring and above ground plumbing.

• Install insulation, drywall and start exterior finish.

• Texture drywall and install interior doors and trim.

• Paint interior of home.

• Install cabinets and counter tops.

• Trim out plumbing and electric, install HVAC.

• Install landscaping and sod.

• Clean window, tubs and cabinets.

• Install flooring material.

• Final check of house, complete minor touch-up items and final cleaning.

• Homeowner Orientation/Walk-Through.

For many people, building a home is a dream come true. The process can appear to be complex and never ending. If you know what steps are involved the process will be rewarding.

-Howard Slutsky, The Tax Institute

The Tax Institute is the recommended expert alliance of http://www.TheMoneyExpert.com

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2006 International Administrative Services, Inc.