MortgagesUndressed

I could make this a long article. I won’t.

Q: What is a Custom Construction Loan?
A: A special loan product designed to protect both a builder and the party building a house. It is usually used when the land is owned by the ultimate home owner. It is sometimes used by builders with a buyer, where the builder may have a difficult time getting a loan without having the buyer firmly in place.

Comment: If you owned a lot and had a builder to build the house, how would he pay for the construction? Not many can or will pay cash. Most likely the builder would need to borrow. OK, he will need collateral. Your lot. Wait. Do you dare turn over title to your lot to him to get a loan? What if he gets into trouble financially? He won’t. He could! I know this from personal experience. Builders get into financial trouble sometimes. Mine did.

So here comes the construction loan. The builder and you have to sign off on the draws. The bank must feel OK about the builder. You must qualify for the loan. You both go through qualifying actually. The builder must provide a resume, or be familier to the bank. The bank does research. They require some equity. If the builder goes away, they pick up the pieces and see to it the home is completed

THIS IS WHY IT IS A GREAT LOAN.

Costly I say? Yep, the fees are high the rate high. You pay for this. Usually you get an adjustable rate loan and refinance it into a fixed after the home is finished. Oh, so all those fees for a few month loan? Yep.

A time waster? Yes, for the reasons I have explained so far, plus the fact it is a difficult process, almost all of you who embark on this great idea, will quit before you finish.

It is not fun folks.

Larry Cragun