Deciding on a home to buy is a long and strenuous process, especially for first time homebuyers It’s a huge financial decision to make, especially when many of the properties available to you may not meet the requirements you’re looking for. One solution to this issue is to build your own home, which might be easier to do than you think.
Different Types of Construction Loans in Texas
There are two primary types of home construction loans in San Antonio – Stand-Alone Construction Loans and One-Time-Close Construction Loans. Depending on your borrowing qualifications, each loan type has its own advantages and disadvantages. At their core, construction loans are designed to help you build your own home or to help you pay for a major remodeling project on your existing property to make it your dream home.They can also be used to construct buildings for businesses or rental properties in some cases.
Plus, many construction loan programs in Texas allow you to select a builder of your choice. Your lender can even help you verify the authenticity of the builder you choose before construction begins to ensure your hiring someone qualified for your construction job.
Stand Alone loans, also known as Two Time Close loans, are a standard lending option for a construction loan. The borrower will have two individual sets of fees for two separate loan closings. The first closing will be for the construction of the property and the second closing is for the permanent mortgage after construction is complete.
Borrowers cannot lock the mortgage rate ahead of time with this construction loan option. If the interest rate goes up during the construction period, the borrower may pay a higher-than-expected interest rate for the permanent loan after completion of the home construction.
One Time Close loans, or Construction-to-Permanent loans, are a slightly simpler construction loan program compared to stand-alone loans. These single close loans combine the costs of purchasing the land and the construction of the property into one loan. The borrower only has to qualify for a long-term mortgage one time during the entire process.
They’ll receive interim financing during the construction stage and the lender will then convert the loan balance into a permanent mortgage either after the house is built or a certificate of occupancy has been signed.
During construction, the borrower will only pay interest on the loan. One Time Close loans are made directly to the borrower, making it a direct loan. Borrowers will receive monthly statements for their interest payments, and they’ll also have 12 months from the date of closing and funding to build and complete the construction of their new home.
How Construction Loans Work
In their simplest forms, construction loans San Antonio are loans designed to help you build your own home or fund a big remodeling project on an existing property. There are many national and state construction lenders who service construction loans throughout the country, though it’s important to keep in mind that many conventional construction loans require a 5% down payment in order to get started or qualify.
In the event that the borrower has owned the land they’re building on for at least 12 months, they could use the equity on the land in place of their down payment, but that 12 month seasoning requirement is often mandatory. If the borrower doesn’t meet the seasoning requirement, the lesser value between the full acquisition cost and the land’s appraised value will be used instead.
Land gifted to the borrower from an immediate family member can also be used in most cases.
Perks of One Time Close Construction Loans
Single close construction loans San Antonio are often more beneficial to the borrower than stand alone construction loans in a variety of ways.
They come with a fixed interest rate
Interest rates on single close loans can be secured or locked a few months before the construction project is complete. Interest rates during construction re pre-determined and will convert into another predetermined rate once the borrower closes on the loan.
Borrowers only have to qualify one time
If the borrower qualifies for long-term financing, they will be eligible for a one-time close construction loan. They don’t have to qualify again for the permanent funding after completion of the home construction.
Closing costs are reduced
Since borrowers don’t have to qualify twice, they significantly reduce the risk of “re-qualifying” again once the house construction has been completed.
Single appraisal requirement
Two-time close transactions require two separate appraisal reports, by two different appraisers, both paid by the borrower. A single-close construction loan only requires one appraisal before closing on the final loan.
You avoid intervening liens
An intervening lien is what happens when the borrower gets a two-time close loan that does not convert to permanent financing (like a one time close loan) and requires a second closing for the other loan. The recording of the second deed of trust to pay off the construction loan will typically be present.
This usually happens when the borrower disputes with the builder about the quality of craft. The final payment is withheld, and the subcontractor doesn’t get paid. In return, the subcontractor files a “mechanics lien,” which is an intervening lien.
Other Home Owner Lending Options
If you’re not sure about building your own home, there are also mortgage programs that come with down payment assistance to help you find a home of your choosing. So if you’re not dead set on a construction loan, you can still shop for the home of your dreams and we can help you get it.
Some options available in San Antonio, TX include:
My Choice Texas Home Program
My Choice Texas Home is a program for returning home buyers, only there’s absolutely NO first time home buyer requirement. Aside from that small difference, the program is quite similar to the FTHP as far as eligibility is concerned. Income and purchase price limits apply, you need a minimum credit score of 620, and some additional requirements may apply.
San Antonio Homebuyer Assistance Program
The San Antonio Housing and Community Development Department (HCDD) is responsible for the city’s Homebuyer Assistance Program (HAP). The program is available for low to moderate income households, providing funds that can be used to assist applicants with paying their closing costs, down payment, and principal buydown.
Additional Things to Keep In Mind While Planning to Build Your Own Home
There are a lot of factors beyond financing that go into building a home. You need to find the right builder or company to work with. You’ll need blueprints drafted by the builder or an architect for your project. You’ll need to know how much materials are estimated to cost for the build, among other things. Your lender will often help you scrutinize builders and other individuals involved in the construction project, but looking into as much as you can may give you a better sense of what’s going on – and make you feel more in control of your investment.
Find Out If You Qualify for a Construction Loan Today
How you finance the construction of your new home will play a significant role in whether you’ll be pleased with the whole process or entirely stressed-out.
Let us help take the stress out of building your dream home. Our one-time close San Antonio construction loan is the best in the industry and not offered elsewhere, not by any other lender in the country. For more information about the conventional-conforming one-time close construction loan, with a 95% loan-to-value (LTV), call us at (866) 772-3802 or check out some of the tools around our site to get started!