Section 2: Am I Eligible for a Construction to Permanent Loan?
Eligibility For a Construction to Permanent Loan
In general, any borrower with solid credit and the desire to have their home built will be eligible for a construction to permanent loan. If you want to build a home from the ground up, your first move is to purchase a plot of land. Then you can begin the construction process. That would normally entail getting one loan to cover the purchase of the land and costs of construction, and a second loan for the mortgage on the finished residence. But you can save time and money by pursuing a construction-to-permanent loan. This option simplifies the financing process by providing one loan and one closing transaction. There are some caveats to keep in mind though: You may end up paying a higher interest rate, or a larger down payment may be required. And your lender may have additional requirements and restrictions. Determine if a construction-to-permanent loan is right for you by learning more about what’s involved.
*Don’t meet the minimum requirements? You still may be eligible: talk with an Orbit Home Loan specialist today. (CLICK)
Down Payments
Because construction-to-permanent loans cover more than the cost of purchasing a finished home, down payment requirements are usually higher than regular construction loans. Most lenders ask that you make a down payment of about 20% of the property’s projected value, at minimum, while others may require up to 25 or 30%. If you put less than 20% down, the lender will probably require you to have private mortgage insurance to protect their lending investment.
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Documents Your Lender May Require
- W2s or 1099’s
- Bank Statements
- Pay Stubs
- Asset Statements
- Liability Statements
- Legal ID
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Construction to Permanent Lender Requirements
Credit and Income
A lender will often want you to have good to excellent credit. To reduce their risk, lenders require borrowers to have a credit score of 680 or higher to qualify for a construction loan. That’s just the minimum, as some lenders may require a score of 720 or better. If you’re planning to build a house, consider taking some time to improve your credit score before applying for a construction loan. Enough income to pay off the loan. In addition to having a strong credit history, you should have enough income to cover payments on your current debts and the new construction loan. To confirm this, your lender will ask for financial statements or other documentation demonstrating your annual income. A low debt-to-income ratio. A borrower’s debt-to-income (DTI) ratio is a comparison of all of your monthly debt payments to your gross monthly income. The lower your DTI, the more cash you theoretically have to make construction loan payments each month. To increase the likelihood that borrowers will be able to make payments, lenders typically require a DTI ratio of no higher than 45% when issuing construction loans.”
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How to Apply for a Construction to Permanent Loan
Get started today with one of the best and most secure ways possible. Here are Orbit Home Loans we have a trusted team ready to help you find your dream home. Talk with you trusted Orbit Home Loans broker that knows conventional loans and how to get the most from this hard-earned benefit. The process typically starts with getting pre-approved, which can often be done in minutes using your phone, laptop or tablet.
Loan pre-approval is a key first step before making an offer on your dream home. Having that pre-approval letter gives you a clear sense of your buying power and shows sellers and listing agents you have what it takes to get to closing.
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