With banking regulations tightening, lenders are staying
away from speculative building projects; there are still some willing to
finance new home construction for buyers who put down substantial monies.
Construction financing isn’t the type of loan one goes
shopping for online; it is more likely to be found up the street. Local banks
are more comfortable making home construction loans because they know the local
market. But qualifying is more complicated than for a conventional mortgage.
Borrowers have to do a lot more legwork ahead of time because, in addition to
proving that they can afford the cost of the house, they must show that they
have a viable project.
Down payments usually are between 20-30% of the total home
cost. There are lenders, both local and regional that will combine the
construction loan and the permanent into one closing called “construction to
permanent financing.” This cuts down on
a lot of closing costs but the final interest rate may be slightly higher than
for a permanent loan only. You might pay an extra ¼%.
Funds for this type of loan are disbursed and the borrower
is only charged interest until the home is complete.
If you are thinking of buying land now and building later,
be prepared to put down upwards of 50%. The banks know that if a borrower loses
their job or runs in financial problems, the land loan will be one of the first
things to go. That is why you see so little “land only” loans.
The banks are not being hard asses about lending money, they
are still reeling from regulations put in place after the housing recession in
2007 and there are more regulations coming Jan 1, 2013 that have the bank scratching
their heads and wondering what impact they will have on lending.
So even there are new houses being sold by modular home
builders, it isn’t as easy as it once was to get new home financing. Modular factories have to realize that slow
loan origination means a longer lead time….Ouch.
