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Financing Your Timber Frame Home in 3 Easy Steps
The first step toward realizing your dream of building a new timber frame home is educating yourself on the financing options available.
STEP 1: WHAT DO I DO? Determining what financing best fits your needs early in the process will help guide you through the design and pricing process. Since not everyone has the same financial needs, your first step should be a call to your lender to determine the maximum mortgage amount you qualify for and the mortgage program that is best for you. A pre-qualification can be done in a matter of minutes over the telephone. At this time the lender will determine with you if you should make a full application or apply for pre-approval. Both the application and pre-approval are done over the telephone. A pre-approval gives you a commitment letter that is good for 120 days, allowing you time to finalize your design and pricing. The commitment letter will give you the confidence of knowing exactly how much house you can afford and the opportunity to take advantage of an interest rate you are comfortable with. When you finalize your design and pricing, your financing is ready. The documentation we will need from you for application include: Application fee and lock deposit (if applicable) 1 month of current paystubs 2 years most recent W-2’s 3 months of bank statements 12 month’s mortgage history Sales agreement or deed for land Complete set of plans, specs and a fully executed builders contract Record of any deposit paid to builder/contractor
STEP 2: WHAT LENDER DOES! Once your application has been taken over the telephone, the application is sent to you for your signatures and to obtain the required documents listed previously. Once your loan officer has received the application package back from you, it is sent for the processing of documents and for underwriting approval. After all documents are reviewed and all guidelines are met, the underwriter issues an approval. Upon approval of your loan, an appraisal will be ordered. The appraised value of your home will be based on the value of your land, plus the construction costs. A customized construction disbursement schedule is developed. Your builder will help to determine at what phase the construction will be complete. During construction of your home, inspections are ordered after receiving written or verbal requests from you or your builder/contractor. A variety of payment options are available depending on your situation. Locking your interest rate can be confusing. Talking with your lender through this process will help you. Some points to remember: The construction loan interest rate is automatically locked at application The permanent mortgage rate can either be locked at application or you may elect to float your rate. If you locked your permanent rate at application, your lock is good for 30 – 270 days depending on the option you choose. You will need to know when your home is expected to be completed to select the best rate lock option. If you wish to float your permanent rate, it will float until you call to lock or it will automatically be locked 5 days prior to modification.
STEP 3: HOW IT ENDS! After the appraisal is received and all documentation for the construction and permanent mortgage are complete, a settlement will be scheduled near you for your signatures. Some closing costs are paid at this time, any liens against the land are paid off, and the construction phase of your home starts. You are required to make interest-only payments to your mortgager on the funds that have been disbursed to the Builder/Contractor during construction. Once a final home inspection is completed and a certificate of occupancy is issued, your construction loan is ready to modify into your permanent mortgage. A modification package is sent to you for signatures on final documents and to pay the balance of your closing costs. After modification, your interest-only payments will no longer be required; instead you will start making your regular monthly mortgage payments. Now it is time to enjoy your new home. Thank you for taking the time to learn how easy financing your new Timber Frame home can be. NOTE: The above was prepared by Robin C. Urban, or M & T Mortgage Corporation.
Options for Financing your Timber Frame Home
by: Andy Schell
The best possible financing for a home is, of course, a Conventional Mortgage*, in other words, a mortgage with a loan balance of less than $333,700. A *conventional mortgage offers the lowest interest rates and the broadest range of mortgage programs and products. In the case of a timber frame purchase with a turnkey contract, application may be made with certain banks for Construction Permanent Financing with a One-Time Closing.* This is not an option offered by all banks, but with some research it can be found. To prepare for this application, you should have all parties lined up, with estimates from each: in other words, your timber frame company, contractor, and any others, such as a foundation builder, if separate from the contractor. In the case of an owner/builder, obtaining a conventional mortgage is possible but will require more effort. I have three suggestions that may help you in this case. 1) Obtain an equity loan on one or more of your current properties. This will provide cash for building. Although the terms are less favorable than those for a conventional mortgage, upon completion of building, a conventional mortgage can be obtained and the temporary financing paid off. 2) Short-Term Construction-Only Financing can be obtained with a local bank, in which case a conventional mortgage is required upon completion. This short-term loan provides the necessary funds for building; then the conventional mortgage replaces the original loan and provides more favorable long-term financing. 3) Explore consumer loan options -- a conventional mortgage would be desired upon completion. The conventional mortgage can be applied for ahead of time and await completion of building.
Andy Schell is a Mortgage Loan Officer for Southtrust Mortgage Corporation.
Disclaimer Note: The above articles, provided by lenders, are to be used as information only. Every customer brings different criteria to the loan process. Goshen Timber Frames does not endorse or recommend any specific lender, customers will use their own judgment and resources in making financing arrangements. |
