CONSTRUCTION LOAN BASICS
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Article by: Mercedes Hayes It might not be too big of an exaggeration to say that the construction loan is one of the more daunting aspects of building , Growing White Pine Trees In The Harrisburg Pa. Area your custom home. , The American Arborvitae Grows well in Quakertown Pa. Before we started our project, I had nightmares about trying to pay two full mortgages at the same time (our existing mortgage and the construction loan), and I didn't see how it was at all possible. However, the reality ended up much more reasonable than I dared hope. COLLATERAL: Many : but not all : mortgage companies require you to own your land first before you apply for the construction loan. That way, if the borrower defaults, the bank has a way to recoup their investment. Some banks will let you roll in the land purchase with the construction loan, but you may have to pay a premium. TIMING: Your standard construction loan will be based on the one year plan. , Removing Snow From Roof Using Roof Rakes It's perfectly reasonable to expect to finish within a year, unless you are building , It’s Gardening Season! a handcrafted , Rid Your Garden of Slugs log home. , The American Arborvitae Grows well in Quakertown Pa. The good news is that you aren't obligated for the full construction loan amount from day one. You only have to pay interest for the amount of money you actually borrow from each draw. So you won't really be carrying the full mortgage until the end of construction, at which point you will roll the construction loan over to a conventional mortgage. BUDGETING: Before you apply for the construction loan, you must get all your quotes in order. Banks are not happy about increasing the amount of money you ask for. Be sure to account for all the sub-contractors (plumbers, masons, electricians, excavators, landscapers), the well and septic, the windows , How to Modify Your Landscaping to Protect Your House from Bu and roof, , Building A Garden From Nothing At All the painters, and even the grass , The Joy Of Gardening seed. Your mortgage representative will expect you to have a handle on all your financial needs (see my article BREAKING DOWN THE BUDGET OF YOUR LOG HOME for more specifics). If some of these expenses will be out of pocket, it wouldn't hurt to include them in your construction loan request anyway, so you have a cost overrun buffer. And get more than one quote if possible, then use the highest quote in the construction loan request. If you go with the lower quoted job, you'll have another buffer in your favor. Before the mortgage company agrees on the loan, they will require a copy of the floor , The Invention Of The Modern Mattress plan, permits, and survey. Then they will send out an appraiser who will inspect your property , Patio Awnings and determine whether your project will appraise for the amount of money they are committing to. Luckily, more and more banks are giving log homes , The American Arborvitae Grows well in Quakertown Pa. a fair appraisal, but it helps to choose a company that specializes in log homes , Selecting Replacement Windows or your market value may come in too low. DRAWS: When you've itemized your anticipated expenses, you can share this with your mortgage rep., who will then ask you how you would like to break down the disbursements (or "draws" as we commonly know them). This will be your decision (with a little hand-holding). At first, you might want to schedule a couple dozen draws, until you realize that there is a service charge attached to every draw. For instance, every time the bank releases a draw, you have to notify them a few days in advance. The bank sends out an inspector to verify that the promised work was performed. Then they order a Title Search to verify that you haven't had any liens put on your property , Building A Garden From Nothing At All since the last draw (this costs about $125 each time). This leads us to the next issue that pertains especially to building , Electricity and Water Features a log home. , Fall Prep Work Makes for a Green Spring Normally, banks release a draw after the work has been completed. However, log home , Growing White Pine Trees In The Harrisburg Pa. Area manufacturers require COD when the logs are delivered (or ideally the day before). Historically this had been a bone of contention between the banks and manufacturers, , The Invention Of The Modern Mattress until certain banks took the lead and set up accounts directly with the log home , Patio Awnings companies. This expedited the whole process. These direct deposits become draws on your construction loan. EXAMPLE: In our case, we ordered a total of 11 draws. On settlement of the construction loan, the bank started us with about $38,000 for misc. expenses. We used much of this to bridge the gap between draws (the contractors , Getting Rid Of Standing Water In Your Yard want to get paid regularly). There was a draw for the Log Kit deposit. There was a draw for our Superior Walls , It’s Gardening Season! precast foundation (another direct deposit). Another draw paid for the COD log delivery; another draw paid for the window , How to Get the Most From Your Home Theater - Without Spendin delivery. Then things got more tricky, because the next draw covered the well and septic, which had to be completed first. Once the log walls , When And How To Prune Roses were raised another draw came, another when the "weathered-in shell" was complete, and another draw when the mechanicals were installed. The last draw came at the end of the project, but the bank wouldn't release the money until we had stained the house , Beautiful, Sparkling Chandeliers! and planted grass , House Plans – Where To Start seed. They wanted to make sure the house , Planning Your Herb Garden The Right Way was ready for sale. With luck, you won't be delayed by weather , The Advantages of Spa Gazebos or on-site errors, which could derail your whole plan. , Lemon Tetras However, if you don't have some extra money set aside, your contractors , Removing Snow From Roof Using Roof Rakes might quit working until they get paid, knowing full well that you won't get paid until the work is finished. Coffee and donuts help to keep relations smooth, but nothing works like cash. And remember: if by some miracle you don't use all the money you requested in the construction loan, you can always give the rest back. So don't cut corners. Estimate high, spend less, and you just might have enough left over for that luxury item you always wanted. About the Author About the author: Mercedes Hayes is a Hiawatha Log Home , Good Credit Scores = ROI Profits For Real Estate Investors dealer and also a Realtor in New Jersey and Pennsylvania. She designed her own log home , Planning Your Patio Garden which was featured in the 2004 Floor , Water Conservation For Gardeners Plan Guide of Log Home , Selecting Replacement Windows Living magazine. You can learn more about log homes , Lady Bugs Are Your #1 Natural Pest Control by visiting www.JerseyLogHomes.com. |
  
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