New Construction Loans

OVERVIEW

New construction loans are specific and unique. Specific because they apply only to new residential properties that require funding for construction. Unique because they are often a short-term—and even intermediary—loan by nature, meaning a construction loan is the first loan in what usually is a two-phase loan process. A construction loan may be the best mortgage product to serve an individual through the building and construction process of a property. It allows the borrower to initiate the building process and provides funding for necessary expenses. This is usually about a year. Then, the borrower must refinance and enter into a new loan agreement to carry the final loan. This is sometimes called the “permanent financing.”

Additional Details

Down Payment: Typically, 10% of the appraised value. The lender will require that the value of the future property is estimated by an appraiser who determines an estimate by reviewing the detailed building specifications of the future property, evaluating the value of the land it’s being built upon, and comparing the new construction in its finished form to similar existing properties (i.e., comparables or “comps”).

Loan Term: Short, usually about a year. However, this is only the term for the new construction. If the loan is not paid-off after construction, permanent financing is needed, requiring the homeowner to refinance and enter into a new loan that provides a more conventional financing option, such as a 30-year term.

Credit Requirements: Because the risk to lenders is considered greater in the case of new construction loans, a stronger credit score is required, usually a minimum of 680. Some lenders may require a minimum of 720.

Speak with a Union Square Mortgage professional to learn if a new construction loan is the right mortgage product for you!