How Construction Loans Work
It would seem that construction activity is still fairly high based upon the number of calls that I get from people about construction loans. There are a lot of calls from people just getting started, as well as from a number of seasoned "construction veterans." In a large number of those calls, I hear some common questions. So I thought that I 'd answer a few of them here.
Q: How do construction loans work?
A: In general, just like every other loan. You sign loan documents and money is funded into escrow. In the case of a construction loan, only a portion of the total loan is released. The balance is released either in preset "stages" or as workers complete portions of the project according to a budget. The former is called a "draw" system and the latter is called a "voucher" system.
Q: How are the payments calculated and who makes them?"
A: Commercial loans have the added security of an income producing property providing the funds to pay the loan payments. For residential loans, it's the borrower's income. When a property is being built, there is no secondary source of repayment so the burden of payment would normally fall to the borrower. But lenders didn't want borrowers to use up all of their funds in case something went wrong with the project, so they created "interest reserves." This is a chunk of money set aside in the loan to do nothing but make the loan payments during the construction process. The payment is based upon how much money has actually been used or "drawn" at the time the payment is due. This is not the case for private money lenders. They calculate interest on the entire amount of the loan from the initial funding date.
Q: What's a contingency reserve?
A: This is another chunk of money set aside in the loan to protect you against cost overruns. Since it can take a year or more to complete a project, the prices used to estimate the construction budget become less accurate as time marches on. The contingency reserve is released a little bit at a time during the construction process to cover inevitable price increases.
Q: How do you calculate the maximum construction loan?
A: The maximum construction loan is based upon many factors: Property type, stabilized value at completion, total costs, and equity invested to name a few of the key concerns. For any given property type, there is usually a maximum "loan to costs" and a maximum "loan to value." The key is this: The largest permanent loan for which the property can qualify, assuming it is built and fully occupied or valued, will limit the construction loan. This is because the construction lender wants to be paid off at the end of construction and the way to do that is with a permanent loan. This does not mean that if the permanent loan exceeds the total costs of the project that you can get 100 % construction financing. Just about every lender is going to look for 10 % to 20 % of the total costs to be funded by equity or cash from the borrower.
Reverse Mortgage Rules and extra Information You Need to Know
Today, several seniors are dealing with financial struggles. Whether it's medical expenses or additional finances to compensate their social security checks, almost every senior has to deal with these problems. If they need help then a reverse mortgage program would be the perfect choice. The FHA has their own system known as the Home Equity Conversion Mortgage, although other lenders can offer these reverse mortgages as well. If you are considering whether this is an option for you or a family member, it's important to know about reverse mortgage rules and other important information before deciding if it is the best option.
What is a Reverse Mortgage?
Before looking at some of the new reverse mortgage rules, you may be wondering what a reverse mortgage is and how it works. This specific home loan option allows you to get value from part of the equity that you have in your home. The best part is this isn't something you need to repay until there are mortgage challenges. This will help seniors cope with their living expenses, home improvements, or any other financial issues.
Who Qualifies?
Some of the reverse mortgage rules have to do with who actually qualifies to get this type of a money. According to the rules, you have to be 62 years old or older and you must own your own home. You want to have a small mortgage balance or you should own the home outright. Also, taking a reverse mortgage on will require you to live in the home. There are new reverse mortgage rules like being given consumer information before you make the decision to get a loan.
Home Eligibility
You also need to know the reverse mortgage rules on what homes are eligible for this type of a loan. The homes that are accepted include single family homes or homes that have 1-4 units. In order to use an unit building for your reverse mortgage, you're going to have to occupy it. Manufactured homes and condos that are HUD approved might also meet the requirements for a reverse mortgage as well.
How much can you borrow?
What type of money can you borrow with a reverse mortgage? If you take a look at the reverse mortgage rules, the amount will depend on several different variables. Lower interest rates can allow you to borrow more, as can a home that is worth additional money. If you don't have a calculator handy, use one online and find out how much you can borrow.
It is definitely important that you learn as much as possible about this loan option and the reverse mortgage rules before you decide to take this route. It has proved to be very invaluable for many seniors and has a lot to offer. Just make sure you get good consumer information to ensure that you know all your options and the new rules. This way you can get on your way to a better financial conditions during the years to come.
Are There Unnecessary Fees in Your Cheap Mortgage Loan Quote?
If you are new to the business of mortgage loan quotes and interest and fees, you might get taken advantage of by unscrupulous lenders. Before you venture into any kind of transaction that involves money, it is a good idea to educate yourself and standard practices of a particular industry. While the mortgage lending industry has come under a lot of scrutiny the past couple of years, there are still many lenders out there that will do their best to separate you from your money unfairly.
First, when you want to apply for a cheap mortgage loan, the company shouldn't ask you to pay for your own credit report. This should be considered a cost of being in the lending business and it shouldn't be coming out of your pocket. Once they have run your credit, they are required to provide you with what is called a "Good Faith Estimate."
This is a list of the estimated cost of fees that will be associated with your loan. Some of the fees will be paid for by the seller, but most are paid for by the buyer. Check it over for fees that seem out of the ordinary and ask for explanations when going over your mortgage loan quote.
Learn the Lingo of a Mortgage Loan Quote
Venturing into the world of mortgage loan quotes can leave your head spinning with new and unfamiliar words and phrases. If you have never been involved in buying a home or applying for a mortgage before, you're in for a learning experience. Before heading off to your local loan offices, it might be a good idea to do some homework and familiarize yourself with some of the local lingo. You are probably already familiar with the meaning of the words loan, mortgage and percentage points, so we'll skip those. Here are a few others that you might want to become familiar with however:
* Prime rate: this is the rate that banks charge their favorite customers – such as other banks. A mortgage lender calculates loans at the prime rate plus additional points.
* Points: Percentage point. You might see this as 5.25% plus 2 points, etc.
* Escrow: This is where your money goes when you make a deposit on a house. The escrow company is like a bank that holds and moves all the money and does all the paperwork for the transferring of the house ownership. These are just a few of the terms you will see when applying for mortgage loan quotes.