When planning to build your home the most important piece of the puzzle is:
- Deciding where to put the new surround sound TV
- Deciding how far away to live from the in-law
- Deciding who to trust with your financing
While points one and two will certainly lend themselves to lively conversation, seeking a new construction home specialist is the foundation of your home building experience. Gone are the days of merely obtaining a loan prequalification and considering yourself, “ready to start building”. In today’s banking climate, it is imperative to work with a lender who specializes in new construction loans. How can you know you have the right bank for the job? Asking these questions will help save your time, money, and sanity:
“Does your bank offer Construction To Permanent Loans?”
If the lender answers anything other than, “Yes, we offer construction to permanent loans,” hang up. Sound harsh? It’s not, when you consider you’ll need a very specific type of loan to make your dream house a reality.
As the homeowner, you’ll make incremental payments to the bank during construction. The bank then pays the builder/manufacturer in installments while your home is under construction. When construction is completed, your loan then modifies to the permanent phase of a 15-30 year mortgage.
Either a lender offers this loan or they do not. There is no gray area. Either you stay on the line or you hang up. And while you may find yourself hanging up more times than not, don’t be discouraged! When you finally make the right connection you’ll be completing an application that actually sets the wheels in motion.
“Do you specialize in new construction?”
If the lender answers anything other than, “Yes, we specialize in new construction,” hang up. Moving, even when it’s into your dream home, is one of life’s most stressful events. It disrupts the entire family. Now add to it the pressure of fighting with your spouse over whether to paint the house antique white or eggshell white. You have enough on your plate. Do you really want to add the stress of explaining to the bank what should happen next?
Working with a lender who specializes in new construction means you are being guided by a financial coach who has run this play before. What if you fall behind schedule? What if you’re ahead of schedule? What happens if it snows in May? Twice? Working with someone who can guide you through the highs and lows of new construction can mean the difference between a restful night’s sleep or walking the halls at 3am.
“Do you lend on a modular home and what do you need from my builder ?”
If you are still on the line, this is your third key question. Don’t automatically think all banks working in the construction arena lend on a modular build. Manufacturers require a payment when your home is delivered curbside and finding out that the bank will accommodate this is ideal to know upfront. Additionally, your lender will need minimal paperwork from the builder, but most require validation of your site’s General Contractor and contractors working alongside him too. If your builder is rejected by the bank, you’ll need to find another builder to complete the loan with. Builders appreciate working with lenders who they know understand the construction process. Having your builder approved by the bank during the application process means you are not starting a dead-end relationship. There are many moving parts to a new construction loan and having your key players in position from the beginning will help prevent backtracking and delays later on.
There is a great deal of work that goes on behind the scenes of new construction. Before you pick out tiles and towels, be sure and pick a new construction loan specialist who knows how to get you from dream home to reality residence. A residence that you will enjoy for years to come, whether surrounded by eggshell or antique white.
For over twenty years, Tom Coronato has been a leading New Construction and Renovation Specialist. His expertise led to the publication of his book The Only Real Estate Investing book You’ll Ever Need (Adams Media, 2008) where he shares insights gained through his professional experience and diverse investment portfolio, which includes land acquisitions, commercial businesses, residential rentals, and most recently, ownership in an internationally franchised hotel chain.
As a Loan Officer and New Construction Specialist with Citizens Bank and board member of NAHB, Building Systems Council, Tom Coronato is dedicated to finding the ideal mortgage solution for you. Please contact 973-229-7698 or tom.coronato@citizensbank.com to discuss your specific mortgage needs.