New Home Financing
If you plan to finance your home with a mortgage there are several ways to do this. The most common is with what is called a Construction-Permanent Loan. You will often hear these referred to as “C/P Loans”, “Construction-Perm Loans”, or other industry shorthand but they are all the same thing. In a nut shell, a construction-permanent loan is a construction loan that a bank will make to build your home which will convert to a permanent mortgage at the time of completion of your home.
This loan will most often be made on the appraised value of your home plus land. Different banks have different Loan to Value limits that they will lend for.
Once your loan closes, we can start construction. Red Door Homes will be paid in “draws” which are basically pay requests which come at bench marks during construction or according to a pre-defined schedule.
Frequently Asked QUESTIONS/Definitions
How Much Money do i have to put down?
Red Door Homes only requires a $1,000 deposit at the time of your construction agreement. The good news is, this is refundable up until the point of your Pre-construction Meeting. Your lender’s down payment requirements will vary pending institution, location, etc. The important thing to remember is that your total loan amount will be based on the appraised value of your land + home + improvements. If you have equity in your land or purchase land at a good price, this equity may be able to decrease your down payment.
What is Loan to Value (LTV)?
Most lenders will have a maximum loan to value percentage they will lend on your home. If your bank says Maximum Loan to Value is 90% and your home plus land appraises for $200,000, they will loan up to $180,000 for your build.
In this context, equity is the appraised value of your property minus any debt owned on that property. In other words, if you have a piece of property that appraises for $45,000 and you have a loan on the property for $15,000, your equity is $35,000. This is important to keep in mind when thinking about your down payment. Most lenders will use the equity in your land instead of cash required for a down payment.
Draws are an industry term for payment requests. Red Door Homes will be paid by making draw request through the build of your home based upon an agreed schedule. If you are financing your construction, these draws will be requested from your lender, approved by you, then paid to Red Door Homes.
Can i use VA, FHA, Rural Development Loans to build with Red Door Homes?
YES! Though most banks will require some equity in your construction loan, once the home is complete, they can make the permanent mortgage through FHA, VA, Rural Development programs (if all other conditions are met). Red Door Homes will simply receive our final draw request when you close on your permanent mortgage.
Keep in mind that financing can be difficult to understand but we aim to be your partner in the process. If you have questions about how to finance your dream home (even if you are early in the process) please reach out to us and we will provide a list of lenders we have worked with who would love to help you!
Contact Us today to get more information on financing your dream home!