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.
