Can’t Find Your Dream Home? Build It with a Construction Loan.
Trying to find the perfect home that checks all the boxes on your list of “needs” and “wants” can be both frustrating and discouraging. Home buyers often end up compromising because their dream home just isn’t on the market. Most don’t realize that there’s an alternative to the standard mortgage that allows them to build their own dream home.
What is a Construction Loan?
EHL's Construction Loan Program allows you to the finance the building of a single-family home, whether the home will be your primary residence or second home. The purchase of a property and the cost to build are consolidated into a single closing, which means you only pay closing costs and fees one time.
During the construction period, you save a significant amount of money by making interest-only payments based on total funds drawn until construction is finished. The draw process is simple and flexible with no set schedule. Once the home is complete and the certificate of occupancy (CO) is issued, the loan is modified into a standard loan term at present market rates. At this point, there is no loan requalification, and you pay no additional closing costs.
What Projects Are Eligible For A Construction Loan?
A construction loan is typically used when you purchase either a vacant lot and build from scratch, or a “teardown” home to demolish and replace with a new home.
However, our Construction Loan Program can also be used to build or replace a home on a property you already own, or to renovate an existing home when the necessary repairs go beyond what a standard renovation loan allows.
Stalled real estate projects and modular home construction can be eligible for construction loans as well.
4 Components Of A Construction Loan
Here are four basic components of the EHL's Construction Loan Program – builder approval, project approval, credit approval, and construction.
Builder Approval. Aside from getting you pre-approved for your construction loan, the first and most important step is to approve your builder. You have the freedom to choose your general contractor, but we need to verify that the general contractor is established and reputable. As part of this process, we’ll verify the builder’s license and insurance and make sure they have a recent track record of completing similar projects.
Project Approval. The second step is to approve your specific project. This involves reviewing project plans and specs from your architect, cost estimates from the builder, and an appraisal of the home’s value on the property once construction is complete.
Credit Approval. During these first two steps, we’ll work on your credit approval, following the same process as securing a traditional mortgage. Depending on the loan size, a down payment of only 10 percent is required. You can finance up to 90 percent of the home, including the purchase price and the cost to construct. A minimum credit score of 720 is required to secure a construction loan.
Construction. Once your loan closes, the construction phase begins. You’ll receive an initial draw of up to $50,000 to start the project or reimburse you for materials already purchased. You and your builder will coordinate with the construction manager, who will release funds according to the agreed upon draw schedule as work is completed and inspected.
How Do Construction Loans Work?
- Builder Approval
- Project Approval (appraisal, plans and specs, costs from builder)
- Borrower Credit Approval
- Initial Draw at Close (up to 50K) to get project started and/or reimburse for any materials already purchased
- Post close welcome call from construction management company
- Inspections done as work is put in place, then checks for draws issued to builder and borrower
- Once work is done, loan is modified into a standard 30 year fixed loan at present market rates (vs. the interest only loan in place during construction). Borrower is able to pay down balance on converted loan in the event other property they owned has been sold in the meantime. *NO CLOSING COSTS*
- Stalled projects
- Modular construction
- Major renovations (projects beyond scope of renovation programs)