cancel
Showing results for 
Search instead for 
Did you mean: 

Question about construction loans

Valued Member

Question about construction loans

Bought a condo four years ago. Been up for sale for about a year. made improvements and plan to sell soon as we will be hitting our 5 year max (life plan) in June. Anyhow hubby and I have found the community in which we hope to build. we have been looking at info about FHA loans and whatnot and it hit me, we want to build not just get a new house So FHA may not be what we need.  Now the house is in one of those communities (sounds cultish I know) where there is one builder and a limited amount of floor plans. Some call them cookie cutter neighborhoods. now  if we decide to choose one of those homes do we have to apply for a construction plan or a FHA loan? We were told if there were building the home we liked  at the time we wanted to buy we could just customize it during the building process so it would be like building it but not really. Again we haven't talked to anyone because we  haven't sold our condo, we were just trying to get our ducks in a row for building/buying our dream home. im hoping we don't Need a construction loan because I read up on them..........SCARY to say the least!

6 REPLIES
Contributor

Re: Question about construction loans

From what I understand for communities like you are talking about, you wouldn't typically need to use a construction loan.  The builder would be a great source for information, but there are generally some down payment stipulations (I think it's a small percentage) for the builder to get started but a normal mortgage for the purchase.


Starting Score: EQ-484(10/10/2011) TU-533(10/10/2011)
Current Score: EQ-701(1/18/2013) TU-735(1/20/2013)
Goal Score: 750s!!


Take the FICO Fitness Challenge
Valued Member

Re: Question about construction loans

Thanks!! I will meet with  the community leasing agent to get more info.

Valued Contributor

Re: Question about construction loans

I agree.  I don't think you need a construction loan.  I am closing on a new home built in one of those cookie cutter neighborhoods (lol) and I am doing an FHA Loan through our local housing authority.  Good luck on finding your dream home!  :-)

Cards: Orchard Bank ($1100) | Cap1 Cash Rewards ($2500) | Chase Freedom ($1000) | Best Buy ($2500) | Discover It ($1000) | Barclay Rewards ($2500) | Current scores: EX FAKO: 684, CK TU: 649, FICO EQ: 680, FICO TU: 698, FICO EX: 658 Happy Homeowner Since 2/6/13! Smiley Happy Last App: 4/5/13 Gardening until July 2014
Highlighted
Regular Contributor

Re: Question about construction loans

It is usually up to the builder if they want you to do a construction loan or not.  I am building in a neighborhood where there are two different builders.  Our Builder requires the use of a construction loan as long as they haven't broke ground or even started.  On a spec home, or something that is in the process of being built, the construction loan can no longer be applied, so you can go with an FHA.  That is what we did.  We bought a home that was intended to be a spec, and they already dug a hole in the ground for the foundation.  Because of that, we had to go with a typical FHA end loan. 

 

I am a little weary with construction loans because you technically "close" before completion.  The scare for me is, once they receive funds or a draw fromyour loan, they can take all the time they want.  Besides, while the funds from your construction loan are supposed to fund "your" home, who is to say they aren't using your funds for materials on a house that sold before yours?  With an end loan, they don't receive payment until the house is complete giving them incentive to finish in a certain period of time. 

 

Maybe i'm a little over-cautious, but i'm glad we aren't doing a construction loan


Starting Score:2/1/16 565
Current Score: 3/1/16 575
Lender Mid Score: 3/1/16 575

Goal Score: 700


Take the FICO Fitness Challenge
Valued Contributor

Re: Question about construction loans

The builder will most likely want a pre-approval before starting to build. They will generally also want a small down payment but varies from builder to builder.
Good Luck
May all your dreams and wishes become a reality!
Contributor

Re: Question about construction loans


ccubedzx3 wrote:

It is usually up to the builder if they want you to do a construction loan or not.  I am building in a neighborhood where there are two different builders.  Our Builder requires the use of a construction loan as long as they haven't broke ground or even started.  On a spec home, or something that is in the process of being built, the construction loan can no longer be applied, so you can go with an FHA.  That is what we did.  We bought a home that was intended to be a spec, and they already dug a hole in the ground for the foundation.  Because of that, we had to go with a typical FHA end loan. 

 

I am a little weary with construction loans because you technically "close" before completion.  The scare for me is, once they receive funds or a draw fromyour loan, they can take all the time they want.  Besides, while the funds from your construction loan are supposed to fund "your" home, who is to say they aren't using your funds for materials on a house that sold before yours?  With an end loan, they don't receive payment until the house is complete giving them incentive to finish in a certain period of time. 

 

Maybe i'm a little over-cautious, but i'm glad we aren't doing a construction loan


Well I would hope you'd find a builder you like and feel comfortable enough with to calm those fears. Smiley Happy  And it's typically not in the best interest of the builder to take their time as they are responsible for the interest on the mortgage until construction is completed.


Starting Score: EQ-484(10/10/2011) TU-533(10/10/2011)
Current Score: EQ-701(1/18/2013) TU-735(1/20/2013)
Goal Score: 750s!!


Take the FICO Fitness Challenge