Friday, November 2, 2012

Lending Isn't Keeping Up with New Home Demand

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.

1 comment:

Mungo said...

Nice advice for those who are looking for loan for making their new home. Many people are not sure where to go to find out a loan for their construction project. This information are very helpful for those.