Mortgage Process - New Construction

There are 3 basic types of New Construction: Stick-Built Homes, Modular Homes, and Manufactured Homes. We can finance them all.

  1. Stick-Built. This is the most common type of construction. The entire building process takes place outdoors at the job site. Construction times are typically 4 –12 months (depending on size and complexity of the project).
  2. Modular Homes. Approximately ½ the home built at the job site and ½ the home built at a manufacturing plant. Construction times typically 2 months.
  3. Manufactured Homes. Almost all of the home is built at a manufacturing plant. Construction times typically 2 months.
     

There are 2 basic ways to finance New Construction:
One Close or Two Close.

One Close: Stick-Built and Modular Only.

There is only One Closing. Your loan closes upfront before you start the building process. The construction loan automatically converts to a permanent loan when the construction process is complete.

  • Advantage: Only One Closing (only one set of closing costs).
  • Disadvantages:
    1. Higher Interest Rates (You need a longer lock period. You are locking a loan today that will not convert to permanent financing for several months down the road. Generally 1% higher rate).
    2. Minimum Down Payment of 10% (Must be Borrower's Own Funds. Gifts Not Allowed). Builder can contribute only up to 3% towards Borrower's Closing Costs and/or Pre-Paid Items. Minimum 680 Credit Score Required (No Exceptions).
    3. No Flexibility (Loan closed before construction began. Can’t add to the loan amount during the construction process for any changes or upgrades you’ve made along the way).

Two Close: Stick-Built, Modular, & Manufactured.

There are 2 Closings. Step #1: Construction Loan. Step #2: A Permanent Loan, when the home is complete, that pays off the Construction Loan.

  • Disadvantage: Two Closings (two sets of closing costs).
  • Advantages:
    1. Lower Interest Rates (No need for a longer lock period. Generally save 1% on Interest Rate).
    2. Minimum Down Payment is only 3% (Can be a Gift from a Relative). Builder can contribute up to 6% towards Borrower's Closing Costs and/or Pre-Paid Items. Minimum 550 Credit Score Required (Exceptions can be made for Lower Scores).
    3. Added Flexibility (Can add to the loan amount during the construction process for any changes or upgrades you’ve made along the way).