Making the decision to build your new home is exciting and usually full of questions. It is a big process and can take up to 6 months...sometimes longer. When deciding to build your new home, meeting with your mortgage lender should be one of your first steps. Together you will discuss your plans, the lender will explain their banks process, loan options, ask lots of questions and will want to make sure of several things. He/she will be looking ahead to be sure after the home is built; you and the new home will qualify for a long term fixed rate mortgage. With the application process they verify your income and job time, check your credit, verify your down payment sources, and make sure you can afford the new house with the other monthly loan/credit card payments you currently have. Your mortgage lender will most likely order an appraisal using the plans and spec on the new house and the builder’s contract. The appraiser will determine the value as if the home is finished and compare the new house to other homes like yours that have sold in that market area. This step will insure you will have equity in the finished home and the amount you need for a down payment. You will need a minimum of 5% down. The down payment can come from a variety of sources: equity in the lot/land which you may already own, builder’s credits to you for work you are doing yourself (example: if you are a licensed electrician) or cash from savings. If you do not have 20% down you will need PMI (Private Mortgage Insurance) which covers the lenders risk. Ask your lender more about this.
During the construction period your home builder/general contractor could carry the loan and then sell it to you when it is complete. This is called a “turn key”. If you are building a custom home on your lot, you will set up a construction loan with your lender. The rate on these is most often lower than the fixed rate mortgages and set up for 6 or 9 months. While the home is under construction, you pay interest each month only on the funds used by the builder. A title company helps oversee the construction process. When the builder needs funds, a draw request is completed and you sign that form indicating you know what is being requested. The title company representative will inspect the property, request the funds from the bank to pay the general contractor and request lien waivers from your general contractor for bills that have been paid. This orderly process keeps the general contractor, home buyer and the lender all connected.
At the end of the building project, all the loose ends are tied up. The appraiser visits the completed house and certifies the value; the title company makes sure all the bills are paid and lien waivers obtained; your lender will refresh your application to be sure your credit, income and debts all is in good shape for your permanent fixed rate mortgage. An interest rate is set for the new mortgage and a closing date it put on everyone’s calendar. Oh, and you will probably be calling a moving van and lining up all your relatives for help!
I have been a mortgage lender for over 20 years and been with Union Bank & Trust Company in Evansville, WI for the last 12. I really enjoy helping home buyers through the mortgage process and working for a community based bank like UB&T. Customers benefit from fast response time from our lenders and can call us about their loan anytime because we service their loan here. We have a very hard working team of processors in our loan dept. in Evansville that give great service to our customers and lenders. Our online application system at http://www.ub-t.com/ is always available if the home buyer wants to start the process from home. UB&T has offices and mortgage lenders in Evansville, Brooklyn, Belleville, New Glarus and Oregon. Give us a call for more info on how we can help.
Written by: Sue Wilbur
V.P. - Loan Officer/Marketing
NMLO # 561865
Union Bank & Trust Company
http://www.ub-t.com/
608-882-5200 x1109
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