But in the case of home that is yet to be built, the bank
has to grant a loan for the construction of the new home
based only on the value indicated in your application form.
But Is the signature of a Tom, Dick or Harry is enough for
the lender to grant mortgage?
Understandably, the financing process for new home construction
loan is very stringent. Once the lender agrees to grant
you a new home construction loan, a draw schedule is outlined.
A draw schedule is one document in which the lender describes
in detail how the loan will be disbursed.
The usual practice is that a new home construction loan
is disbursed in 25% increments. To get the next 25% of the
loan amount, you have to establish that 25% of the construction
work has been completed. For this the lender requires an
appraisal report on the progress of the construction.
In a new home construction scenario you need not make any
payments to the lender until the first part of disbursement
has been made. The good news is that it is enough that you
make payments for only the disbursed portion of the loan.
As construction work progresses, more portions of the loan
will be disbursed and the monthly payment that you need
to make will gradually increase.
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As your home is completely built, the full new home construction
loan will be waiting for you to be paid. But there is a
way out to pay this well in advance. Here is how.
Before your new home construction loan is approved, the
lender will require you be first approved for a mortgage.
This requires a commitment letter from your mortgage lender.
Once the home is built, the mortgage amount can be used
to repay the balance of new home construction loan.
One-time Close Vs Two-time Close
Your new home construction loan can be either one-time or
two-time based on the time at which the interest rate is
locked in. With one-time closing, both new home construction
loan and the mortgage close simultaneously. With two-time
closing, new home construction loan closes first and the
mortgage gets closed only when the home is fully built.
