show me the money

Today’s post is written by my husband, Matt. While I like to think I’m knowledgable about finances, it is really his area of expertise and I rely on him for this. Hope you enjoy his post!   

Signing our construction loan

Now that we were getting serious with a few potential builders, next logical thought came crashing down, are we sure that we can afford this? 

In reality, we had done a lot of analysis and felt comfortable with the monthly payment inclusive of principal, interest, property taxes, insurance, utilities/maintenance/other. Once you get comfortable with the affordability calculations, it is important to note that there are a number of different lenders in the Orlando area all with different construction loan programs.

One of the most important factors to look into when researching construction loans is the closing structure. With the lender we ultimately selected, your interest rate was locked in up front prior to construction. As such, the loan liability during the construction process rolls over into a traditional mortgage in an arrangement where you only pay closing costs once. Lenders now combine these two in a package called construction-to-permanent financing. Closing once and only once is key. Anyone whom has purchased a home prior knows how costly these fees can be!   

In addition, pay close attention to the term of your rate lock. We found a lender which locked a 30 year fixed rate up front. We also found lenders which offered 30 year mortgages with a fixed rate for 10 years and others which wouldn’t lock in your long-term mortgage rate until certificate of occupancy issuance. As we wanted to eliminate any risks associated with rising interest rates during the 9 month construction process, we did not investigate further these alternatives. Depending on your outlook on the market though, these alternatives may work better for you.     

We reached out early to a loan officer before we had a signed contract with a builder. We wanted to be prepared with what documents would be required and learn more about the specific mortgage programs they offered. This helped speed up the process once we had a contract with a builder.