Construction Loan Information

by Harmony from USA

Regarding construction loan information: Hi Kate, If you receive a construction loan and have several obstacles that you are facing when the loan matures at 12 months after loan approval, and therefore cannot receive your permanent loan for several months after the maturity date, what is the usual penalty?


Would the homeowners be in jeopardy of losing their home or do they receive penalties until they receive their permanent loan?

In this particular case, the house is completed. Where can I find construction loan information?

Kate Answers: Your Construction Loan Information

***zz-portrait-left.shtml*** Dear Harmony, Years of hope and planning go into building a house. Homeowners feel cheated when a failed construction loan dashes their dreams. I can understand.

Because I can only guess at the obstacles you refer to, I am going to suggest a construction loan information action plan for homeowners in general building a house.

First of all, it is critical to understand the status of your construction loan. Go to Residential Construction Loans - Long Term and Permanent Financing Explained and in addition find unique FAQs regarding building a house.

Not All Residential Construction Financing Is Created Equal

Not all residential construction loans are created equal. In fact myriads of qualifying variations exist within permanent and long term financing.

To get to the bottom of what is hindering your closing, you must insist on a face-to-face appointment with your lender.
Construction Loan Financing Information

Do your best to make the appointment with an employee who has decision making authority. Review each obstacle to closing, asking for their solution. Ask about penalties to a delayed closing.

At a time when lenders are failing, and for that matter during any market conditions, extreme caution must be given to your specific construction loan information. Know your rights and obligations.

If you are having a hard time interpreting the terms or penalties, consult a trusted adviser such as an attorney. In addition, check your local state's website for information governing construction home loans.

I have provided links to the blockbuster home buying series at the bottom of this page for your convenience. I know you'll like it! By all means, please let me know if you have more questions.

Best Wishes,


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Construction Loan to Permanent Loan
by: Jim from Nicholasville, Kentucky

Kate, I am going to help my daughter finance the construction of a new home. She is graduating from Nursing college and is going to work at a local hospital.

The total cost of the home is to be about $450,000. I plan to furnish the funds above what she will be able to qualify for. I estimate that I will put in about $250,000 before the construction loan would be drawn on. So the LTV would be in the 44% range.

Would she be able to get a construction to permanent loan under these conditions? Thanks, Jim

Hi Jim, Kate here...

Only a lender can advise your daughter on individual qualifications but I can tell you this! As a general rule of thumb in lending, the lower the loan-to-value (LTV), the simpler it is to get mortgage approval!

Banks and mortgage companies prefer large down payments because the more equity, the less chance of foreclosure.

But before you begin sinking in your cash, consult the lender on documentation requirements. It is much easier to save the proper documents and create paper trails as you go than make attempts at re-creating them at a later date.

Best wishes on your daughter's new construction, Kate

Construction Loan to Permanent Loan Question
by: Glynn from Bryson City, North Carolina

Hi Kate, We currently have a construction loan. How long before construction is finished should we start looking for a permanent loan. Also would that be considered a refinancing loan.

Hi Glynn, Kate here...

Assuming you are 12 to 9 months out before completion of the construction period, begin shopping for lenders immediately. Then initiate the mortgage pre-approval process no later than 6 months before completion of the home.

If you anticipate that you are fully qualified and do not expect hiccups in the formal mortgage approval process, you may have some leeway. But glitches happen and better safe than sorry when it is your home on the line.

Do you know the difference between shopping for a lending professional and getting pre-approved for a home loan?

1. The purpose of shopping is to qualify the lender, just as an employer would run a prospective employee through the hiring process.

Ask lenders if they will process your permanent loan as a refinance or home purchase. Bank policies can vary especially if the title to the land is in the builder's name.

Because refinancing versus new financing can make a difference in your mortgage closing costs and monthly house payments, this is an important question.

2. The purpose of mortgage pre-approval is to be run through the approval process so that when it's time to lock in your interest rate and close your loan, you won't have any unpleasant surprises.

Best wishes for your new home, Kate

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You can also ask Kate about your mortgage at Ask Kate About Buying a House.

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