New Construction Home Loans In Northeast Ohio Overview
As your new construction home loans lender, I usually ask some basic questions about the client’s new construction situation. Do you own your lot? Are you purchasing the lot? Whether it’s a construction refinance?
If they own the lot, if we’re paying off a lender, or you are buying the lot, we can do new construction home loans either way.
Once we’ve established the home building client’s new construction situation, we talk about their credit scores and those types of things. Then I provide an overview of the new construction home loan process, and I spend 45 minutes on that initial phone call.
There is a lot of information when discussing financing a new home build.
There’s a great deal of revisiting information because there are so many essential things to know along the way. I try to stress what you need to know during the construction loan process, but constant communication between myself and the client during a new construction home loan will be necessary.
The first thing a home building client wants to know is how new construction home loans work. I explain construction loans during the initial call, and I try to keep the new construction home loan as simple as possible.
Once a home building client makes a new construction loan application, we give them 60 days to get the new construction home loan closed, which is plenty of time. I’m averaging 30 to 32 days, which is good. I’ve had some pretty simple borrowers wanting to build a new home. So getting their new construction home loans closed has been less challenging.
Once that new construction home loan is closed, our new home construction period clock starts ticking. Depending on your loan size, whether a jumbo category ($647,200+) or conforming loan size, you get anywhere from 10 months to build your home to complete the construction up to 15 months. It doesn’t mean your new build has to finish by then, but those periods are when you’re going to get converted to principal and interest. In the beginning, you’re only paying interest.
So applying for a construction loan is a real benefit during the holiday season. I’m still prequalifying home building clients, and I’m closing new construction loans in December that are April and May digs. But it’s also vital that I contact the home builders as far as: Are they truly going to start building when they say? Are they going to get built and completed when they say? With accurate construction information, the client knows that the construction loan is going to convert to principal and interest at the end, or they can, or they can pay to extend if the builder needs more time.
Finance A Buildable Lot and Build Later in Ohio
If someone planning to build a new home wants to purchase the lot and start construction later, they can. A lot loan is a 25% down product with a 15-year amortization. With this amortization schedule, your monthly payments are higher due to the 15-year term. The lot loan is a five one arm variable rate.
As your home construction lender, we’re not in the business of land speculation, so that’s why we put an adjustable-rate mortgage is to encourage the borrower to build their new home. And it’s logical.
So we get lot loans started by just qualifying the lot buyer who plans to build a home a few years down the road. Buying buildable land is a purchase, just like anything else. If the lot you’re buying is an improved lot, this program works, and it needs to be improved lot to be a non-exception loan.
A loan-approved lot means you have electric at the street, and you don’t necessarily have to have gas at the road because some people run propane.
If you have sewers of the street, great. If not, you’ll need a septic and will be looking to install a septic system. Count on adding $20,000+ expenditure for a septic system installation but it doesn’t have to be there when you buy the lot. You can purchase a buildable lot as-is with no sewer.
And then two years later, you call me and say, Ron, we’re ready to start construction for our new home. And we selected a builder, the floor plan, selections and pricing. We’re ready to start building a house on our improved lot.
Then that’s when we start the new construction home loan process.
If you’ve paid off your improved lot loan by the time you’re ready to build, then your lot is a portion of your down payment for your new construction loan.
If your still making payments on the lot loan and we’re still the lender, we do a refinance construction loan. We pay ourselves off with the proceeds or your cash, depending on a down payment at closing. You move forward with one loan. It’s construction, and everything, the land and the home are one collateral.
Some folks are under the impression that if they own the land, they could just get a construction home loan to build the home and not be tied to the land. That’s all, and it’s all collateral. You can’t foreclose on a home that doesn’t belong to a lot. So it all needs to be collateralized.
“Ron’s maturity, experience, and knowledge were refreshing. His communication skills are top shelf and he offered to assist with any and all aspects of the process that feel outside of “the norm”. – Pamala V
Close Up Front With New Construction Home Loans in Ohio
As your new construction lender, we close upfront on a new construction home loan.
We go through an application period. Given our environment, I typically lock the interest rate for your construction loan at application.
Most folks choose to lock right away when we have favorable interest rates. You cannot construction your new home until we close the construction loan.
Closing on the new construction home loan is what starts the clock ticking. Upon closing, your interest rate will never change unless you pay it off or choose to refinance. There is no second close or new rate when the construction completes on your home, and you’re ready to move in.
When your builder receives money from the construction loan, your payment is an interest-only payment. These interest-only payments will increase based on what your builder draws, and our standard is five draws with a construction loan.
Some builders with larger new home construction projects want seven or eight draws. We can accommodate them, but the payments interest only. Typically on every hundred thousand at today’s rates on a 30-year mortgage, your builder draws. The home builder cannot draw it without you signing off on that or without the percentage of completion being certified by the appraiser or we also use inspectors.
Your interest-only payment is about $265 for every a hundred thousand. And its built-in arrears for 30 days.
Sometimes those periods, the draw falls in between the month. So it’s not a full 30-day billing on the most recent draw. So, in a nutshell, that’s how our new construction loan is. There is no second close and no exposure to potentially higher interest rates upon completing your new construction build.
Sometimes we run into situations with the weather. In the winter, it is not always common to pour concrete. We will permit weather-related items like a driveway, and we’ll still convert. The money to pour the concrete can be deposited into escrow and held until your builder comes back out in let’s say, March and preps, then pours the concrete. Then your home builder requests the funds and it’s dispersed to them. And we’re on our way.
You can still move in if you still have weather-related items that need completed when weather permits. If your county requires a certificate of occupancy, you will also need an occupancy permit to move in. Many counties still don’t require a certificate of occupancy, especially as you get more rural.
“Timely communication and general caring for the customer.” – Erin F
End Loans With New Construction in Northeast Ohio
An end loan is what I call an extended commitment purchase. So an end loan with new construction would be no different than buying an existing home but having a contract that says I’m going to buy that existing home close in 240 days.
If you want to lock an interest rate upfront, an extended rate lock for many months will be more expensive to do with an end loan.
You’re typically not involved with the builder, but if you want to lock an interest rate upfront, there’s usually a commitment fee. We charge a half a point commitment fee. So that goes into deposit and is credited to your closing costs.
Then depending on what terms you need for the rate lock, your interest rate, there at different tiers. If you were at a purchase today at 3% and you were going out, and it depends on borrower, profile, credit score, loan to value, how much you’re borrowing, but typically they’re about quarter percent increments for how far out you go. We’re hedging against the markets, and with farther out extended rate locks, there’s a lot of risk for the lender.
Using end loans is a popular way to build your production builders (Pulte Homes, Drees Homes, Ryan Homes) that take total control. You make all your choices upfront, they build your home, and you can go to Florida for the winter and come back to your summer home. If that’s what you’re doing, it’s a nice option.
“Ron has set the bar high as a mortgage loan professional. His knowledge and customer service were second to none and was evident when he worked into the night hours to expedite our loan approval. His responsiveness and professionalism is what sets him apart. He quickly built a trusting relationship with us and we will certainly recommend Ron and First Commonwealth to others. Well done!” -Greg and Dana R
Avoid Mistakes With New Construction Home Loans in Ohio
One thing, our underwriters and I am very diligent. We want you to avoid making mistakes with your new construction home loan.
As your new construction lender, I will go through a home builder contract, proposal specifications, and cost breakdown. We need to see that this house has every expense accounted for to make your new home 100% complete.
Do you need to add septic, if there are no city sewers? A well, if there’s no city water? Is everything provided for the driveway, lights, and fixtures? Everything has to be in your home builder’s paperwork.
Our construction loan underwriters are very experienced and very thorough. Then I go through it with a fine-tooth comb as well. The last thing that we want happening is no money and a house that still needs finishing.
If there are some things that a customer wants to do themselves, that is possible, and I don’t recommend it. There’s a lot of coordination with your builder and personally getting involved creates delays and problems.
Or if you want to use an outside contractor, I don’t recommend that because of the coordination.
New home construction is a bustling industry right now. Often, I’ve had clients getting a great price from a friend or a buddy in the past, and they never show or never produce. Then the next thing you know, that septic system and driveway was quoted at $19,000 is now $39,000. That’s a literal example. Where’s that money coming from?
I would say include everything specifications. I encourage all my home builders to have everything in the building specifications. If you don’t know, build an allowance in for it.
Appraisers are very, very, very well-educated. New construction appraisers know what’s realistic when it comes to the cost of building new construction, and they know if you can build this house for the amount quoted in this market. It’s as big an alarm if the cost of new construction is too low, as well as too high, but it’s probably a more prominent alarm if new construction pricing is too low.
If your cost to construct your new home is too low, that can be real trouble.
And I always encourage folks, whatever you do, if you own the land, now don’t cut trees. Some future home buyers are hands on. Don’t cut in a driveway, don’t improve your buildable lot until you are ready to start construction. Those are all potential lien issues for the title company to ensure through.
I work with some outstanding title companies that have been able to, and usually work through potential lien issues on buildable lots. Especially title companies, many homebuilders, work with specific title companies where they can actually do some things and still issue title insurance. But, those are recommendations I’ll make to my new construction clients.
Don’t incur new debt without consulting me first with all standard lending precautions. Things happen, if you need to borrow some money, for a car repair or anything like that, please talk to me first. Let’s discuss how you’ll access more money not to impact your debt to income ratios which can negatively affect your new construction home loan. Don’t quit your job so on and so forth. Pretty common sense things, but new home construction buyers forget and people make mistakes.
“Great communication. Great advice, smooth.” Andrew L
New Construction Loan to Value
When setting up a new construction home loan, they’re appraised on the lesser of the cost to construct or appraised value. The calculation of your loan to value (LTV) is from whichever is less.
They’re putting 5% down on the construction loan and it’s a $400,000 cost to construct the new home. Then that’s a $20,000 down payment plus closing costs.
If it appraises for that or is higher than that, you don’t get the equity from the higher amount. We won’t raise your new construction loan amount because the appraisals are higher and calculate the loan to value.
If the appraiser appraisal comes in lower, your loan amount will be lower. The new construction home loan will require more downpayment, and your closing costs are still there, paid in cash.
We do permit equity if you’ve purchased the buildable lot in cash or let’s say you bought it with our lot loan and you paid it aggressively. It’s three years later, and it’s appreciated now you get that appreciation provided, supported by the appraisal. You get that appreciation, and that’s lumped into the total new construction project and your loan to values calculated from that. So you automatically get appreciation from you lot.
“Easy communication” – Benjamin N
Lot Conditions When Building New Construction in Ohio
We’ve run into lot conditions when building new home construction before with severely sloped lots. I’ve had areas where they’ve hit bedrock, increasing the cost to excavate the foundation for a new build.
I just had a homebuilding client with lot conditions recently that was a $32,000 additional in excavation. The lot was sandy, and water naturally gathered there from the surrounding properties. The homebuilder had to make it safe to lay up the foundation. They had to excavate back half the height of the depth of the basement and pull it back because they were worried that the sandy wall would fall in and push their new foundation wall over and severely hurt someone.
As a construction loan lender, we don’t build anything in the construction loan for lot conditions.
You’re buying a buildable lot as-is.
I always recommend that new construction home buyers consult your builder. If you don’t have a homebuilder, consult someone that knows, maybe an engineer or an excavator. I could put new home buyers in touch with any of the custom builders I work with regularly or excavators I know. They could give them an idea of what they’re into with the excavation of the house. I work with some great builders. They have very keen eyes and can imagine that home sitting there.
Damien, I’m sure you’ve run into that as well with your new construction clients. They’re usually within inches, and they have a very good idea about what to anticipate. Are we bringing dirt in? Do we have too much dirt and need to hall it away? If an area has a lot of sandstone or bedrock, and we could hit that, Catawba Island is famous for that. They do blasting up there. So yeah, there are things to consider when it comes to potential lot conditions.
If the land you own or you’re thinking about purchasing is on a developed lot, I think there is less concern you can still hit things like field tile drains that have been there 80, 90, a hundred years.
I don’t think there’s typically an issue with tree roots. Most of your builders will encourage you to keep the trees a certain amount of distance from your home. Mainly for leaf and gutter maintenance and things that could cost you money down the road, like foundation issues or falling trees.
You can run into things, though, and I’ve seen it in developments depending on who had owned the land before developers cleared it. Farmers sometimes would cut up trees and bury them. We’ve hit those excavating, and you have a lot of rotten trees or cut-up trees or logs. Now the hole has been filled, and there’s no clay to build on. So unknown improvements can lead to additional expense for going deeper and hitting solid clay for footers.
“Ron explained everything in such great detail that we never felt like we didn’t know what was happening or what was expected. If we had a question he responded within the hour. He worked with us to make sure we weren’t in over our heads or blindsided by all the intricacies of a construction loan.” – Andrea H
New Construction Home Loans As Little As 5% Down
One big thing is that we have down payment options for your lot loans and construction loans.
I can do as little as 5% down with private mortgage insurance (PMI), which was very affordable today. The private mortgage insurance companies are for good credit profiles and good credit scores.
I think all credit is good. We may not have a product that would fit a particular credit score, and sometimes we can make exceptions. It just depends. We have different tiers for different products, which can affect the cost of your PMI, and it’s tiered based on your credit score and debt to income ratio.
But PMI is very affordable compared to 10 to 15 years ago, and PMI rates were more expensive and are pretty reasonable nowadays. If you qualify for a mortgage, obviously, you have a sound enough credit profile, credit score, and assets to be approved.
“Can’t put into words how well Ron worked with my wife and I to get us our construction loan. He was very communicative and helpful throughout the entire process; kind and professional. His knowledge and expertise ended up being the factor in getting us the loan.” – Tyler R
Reserves For New Construction Home Loans
We require that you have a certain amount of reserves on our construction loans. They can be 401k reserves, stocks, or cash reserves in a checking or savings account, and they can be brokerage reserves, depending on how many properties you have.
We’d like to see six months of reserves to cover principal, interest, taxes, and insurance for properties you own when you’re going into a construction loan when building a new home.
Things can change, and you can run into additional costs when you’re building. So having the appropriate reserves puts you in a good position when building a new home.
“Ron always responded to any question we had be it via text, email, or phone message within a day or less. That is huge for us these days when customer service is so difficult in so many places.” – William L
Discount Points with New Construction Home Loans
When you’re paying discount points upfront over the term of your loan is where the discount falls in.
People always ask what’s the break-even point for buying discount points. If you pay a quarter of a percent, it depends on your loan amount and depends on how much you’re paying.
When applying for a construction loan, I always ask one of the big questions. Is this a forever home? Frequently it is, but not always. It depends on the age of the client.
What are your goals here? Sometimes is about the term. What terms should I do? A 15-year term has less interest, but it depends on the new construction buyer’s comfort level.
What will help you sleep better at night? Some folks don’t tolerate higher payments very well. More mature/older clients like me may take a 30-year term. Being locked in a 15-year or having the ability to pay on a 30-year amortization payment with an option to pay off early is less risk for many. It’s an excellent building insurance policy. It’s the client’s decision, what they want if they qualify for a 15-year term on a construction loan.
“Ron was so helpful in guiding us through this process! He was always there to answer any questions we had, help us through all the steps, and overall his kindness will forever be appreciated!” – Stacey A
Recast Your New Construction Home Loan
We have an option if you want to make a significant pay down after you close on your new construction home loan. Say you get a really nice bonus, inherit some money, or sell some property off, and you want to pay your mortgage down.
We’ll do a recast for a minimum of $10,000 deposit. Your rate stays the same, but your payments recast over the remaining term of your loan. The beautiful thing is you’re not paying it from the end of your mortgage. Payments at the end of an amortized schedule are the smallest interest portions you’re paying. It immediately affects the interest collected moving forward, reducing interest in each payment. It’s a new amortization schedule. So it’s recasting the loan payments giving you the most bang for your buck when doing it.
There might be a charge for recasting your loan, depending on the policy. If you’ve done it after you’ve purchased with us or built with us, there’s no charge for your first recast, but it’s all subject to whatever the policy is at the time.
“Ron was helpful and very knowledgeable about all aspects of the process. He was great to work with and I will be contacting him in the future for loan assistance.” – Zachary S
Contact Ron Goodwin For New Construction Home Loans
Ron Goodwin – Sr. Mortgage Loan Originator with First Commonwealth Bank
Ron Goodwin has more than 20 years of experience in mortgage lending specializing in construction, construction-permanent, purchase, jumbo loans, and as a lifelong resident of Northeast Ohio. Ron Goodwin has become the go-to expert on condominiums in the region. Due to his extensive work in the construction-permanent space, Ron is a trusted advisor who will help you navigate the process of getting from design and contract to moving into your dream home with knowledge and care. Ron’s commitment to providing his customers with the level of service that they deserve is evident in his availability and prompt responses, but most importantly, in his ability to guide you to the product best suited for your financial journey.
NMLS # 712882
Ron Goodwin Contact Info
Office 330-622-5931 | Fax 330-653-8483 | rgoodwin@fcbanking.com
First Commonwealth Bank NMLS #479240
If you’re interested in learning more about how Realty Done By Damien Baden can represent your best interests during your next home build, call or text (440) 628-1321 or contact me here.
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