Two Ways to Pay

 

Cash

The simplest way to pay for your build is with cash.  We will set up a pre-determined draw schedule and submit invoices for draws directly to you at agreed intervals.

Finance

If you choose to finance your project, we will work directly with your lender to facilitate the draw process.  You will normally still need to pay for change orders with cash, as these are over and above the contract price your lender has agreed to finance.

 

Financing Options for New Home Construction.

With the plethora of loan options available on the market today, it can be confusing as to what makes the most sense for you.  Many would-be homebuyers give up on building their own home after being turned down by one lender, or after seeing strict down payment requirements.  Fortunately, there are lending options available for almost every budget, credit score, and income.  Check out the different choices below that might help you build your Mid-Michigan dream home.

 

Three Types of Construction Loans:

 

1.   Construction-only loan

Also known as a bridge loan, construction-only loans are designed to be short-term and last only for the duration of construction.  As your home is built, your contractor will apply for progress payments from your lender.  These payments are called draws.  Your contractor will submit all of the necessary paperwork to receive a draw from your lender.  While each lender has its own requirements, many require a 3rd party inspector to visit the site and verify that the contractor has comleted the work that they are asking to be paid for.  This not only helps to protect your lender, but you as well.

Once your home has been completed, you'll be required to apply for a permanent mortgage which will be used to pay off the construction loan.  Construction-only loans often require a smaller down payment than construction-to-permanent loans do, making them a more attractive option for those who still need to sell their existing house.

2.   Construction-to-permanent Loan

A Construction-to-permanent loan is two loans wrapped up into one.  First is a construction loan which requires you only make interest payments for the duration of the loan (typically less than one year).  Your contractor will submit draws based on your project's percentage of completion, and receive payments directly from your lender just like on a construction-only loan.  Once the project is complete, your construction loan will be converted into a permanent loan.  At this point, you'll begin making interest and principal payments, and the process is complete.

Construction-to-permanent loans offer several advantages over construction-only loans.  Since you're only required to close on one loan, you will only be responsible for one set of fees.  And, you are only required to qualify for the loan once.  With a construction-only loan, you are often required to complete the underwriting process again to ensure you still qualify for the permanent mortgage.

3.   Home Equity Line of Credit (HELOC)

Home equity loans are only for those who already own a home that they have substantial equity in, and plan on keeping.  If approved, your lender will lend up to a certain percentage of the equity you currently have in your home.  The amount of equity you have can be found using the following equation.

Home's Appraised Value - Current Loan Amount = Equity

 

Lender Options:

 

1.   Bank

Most banks tend to be very conservative institutions with fairly stringent lending requirements.  This can be good if you have a steady income, good credit score, and a low debt-to-income ratio.  However, most banks do not lend to borrowers with a troubled financial history, or who lack a large down payment.  This is where other types of lending institutions may be able to help.  If you choose to utilize a bank, here are some of the lenders we've have success with in the past, and who we feel truly understand the new construction process.

  • Click here to download a list of some bank lenders we have worked with in the past.

2.   Credit Union

While traditional banks are still a popular option for many, credit unions have been gaining market share in many communities by offering lower rates and fees, as well as less stringent lending requirements.  Since credit unions do not hold the same federal charter as a bank, they are not subject to the same lending regulations and guidelines.  This allows them more flexibility in lending to borrowers with subpar credit, as well as speeding up the approval process.

So, before settling with the loan offer from your bank, try shopping rates with your local credit union as well.  You might just be surprised with the offer you receive.  Keep in mind that, if approved, credit unions typically require that you open a checking or savings account with them, so that you become a member before the disbursement of your loan.

3.   Mortgage Broker

Mortgage brokers act as third parties between you and a lender.  While they don't act as the lender, they do have access to many different mortgage programs and have the unique ability to guide you towards the one that fits your needs the best.  The disadvantage to this is that the broker doesn't have control over the loan approval process, and can only communicate with the lender to attempt to keep the paperwork moving.

4.   Federally Sponsored Programs

For decades the federal government has made it a point to encourage home-ownership among U.S. citizens.  This has been done in many ways, the most prominent of which are federally sponsored lending programs.  Each program is typically targets a certain geographical or underserved group of people.  A great example of this is the VA Home Loan program which is available only to past and current service members and their spouses.

We have extensive experience dealing with many types of lending programs.  Check out the details on each to see which one might be of benefit to you.

  • USDA Rural Development 502 Direct Loan
  • USDA Rural Development 504 Loan Guarantee
  • FHA Loan
    • The FHA home loan program is a federally insured mortgage product that reduces a lender's risk of non-repayment.  Under this program, many borrowers are able to qualify for higher loan amounts and/or mortgages they would not normally qualify for.  This is done in exchange for making mortgage insurance payments.
    • Down payment as low as 3.5%
    • Minimum credit score = 580
    • Must work with an approved lender.
    • Learn more at https://www.hud.gov/buying/loan
  • MSHDA Michigan Home Loan
    • The MI Home Loan is a down-payment assistance program sponsored by the Michigan State Housing Development Authority.
    • Down payment assistance for up to $7,500.
    • While the assistance is a loan that must be repaid, it does not accrue interest, and does not need to be repaid until the first mortgage is paid in full, the house is sold, refinanced or homeownership interest is transferred.
    • Must work with an approved lender
    • Must be located in a targeted area
    • Income limits apply
    • Minimum credit score = 640
    • Learn more at https://www.michigan.gov/downpayment
  • VA Loan