Understanding Construction Loans in Bonner County Idaho
Summit Lending’s residential construction loans provide flexibility and offer a unique set of terms tailored to the building process unlike traditional mortgages. Use our construction loan calculator above to calculate your construction loan rates in Bonner County Idaho.
What are Construction Loans?
Unlike standard home loans, they release funds in stages. In most cases, borrowers are only responsible for the interest on the funds drawn until the project is finished.
One-Time Close vs. Two-Time Close Loans
One-Time Close Loans
Combine the residential construction loan and the permanent mortgage into a single loan allowing the borrower to lock in interest rates at the start.
Advantages:
- Single set of closing costs.
- Financial predictability, since Interest rate is set before starting construction.
- One application and one closing for a streamlined process.
Disadvantages:
- Less flexibility to change terms or lenders after construction.
- Potentially higher initial rate than a two-time close loan.
Two-Time Close Loans
Involve two separate loans and closings: One for the construction phase and another for the permanent mortgage. There may also be different construction loan rates for Bonner County Idaho.
Advantages:
- Flexibility to shop for better rates later.
- Lower permanent mortgage rate potential, if market changes.
Disadvantages:
- Undergo approval and closing costs twice.
- Risk of not qualifying for permanent financing.
- Interest rate volatility.
Calculating Residential Construction Loans
Calculating the amount you need for a construction loan involves several steps:
- Estimate your budget: Create a detailed construction budget with your builder, accounting for materials, labor, permits, and contingencies.
- Get an appraisal: Lenders will require an appraised future value of the home in order to offer a loan.
- Determining Loan-to-Value (LTV) Ratio: Lenders typically offer financing on a percentage of the lower of the appraised value and construction costs, requiring a down payment for the difference.
For example, if your construction costs are estimated at $300,000 and the appraised value of the completed home is $400,000, a lender offering 80% financing would provide a loan up to $240,000.
How to Go About Getting a Construction Loan in Bonner County Idaho
- Prepare Your Finances: Lenders view residential construction loans as higher risk (because the house doesn’t exist), so your credit score, debt-to-income ratio, and other factors will have to meet a lender’s requirements.
- Select Your Contractor: Choose an experienced, reputable builder. The lender will likely need to approve your selection.
- Develop a Blueprint: In addition to a detailed construction budget, lenders will require a complete architectural plan.
- Discuss Rates: Contact the experts at Summit Lending in Utah to discuss the construction loan rates and options.
- Begin Underwriting: Submit your financial information, construction budget, blueprints, and appraisal for loan consideration.
- Finalize the Loan: For a one-time close, you’ll do this once. if you’ll be financing the residential construction loan and mortgage separately (two-time close), you’ll finalize a second loan for the mortgage.
Lowering Your Monthly Payments
To reduce your monthly payments during and after construction, consider:
- Increase your down payment
- Select a longer-term mortgage
- Shop for competitive rates
Conclusion
Construction loans offer a path to building your custom home in Bonner County Idaho. Careful planning and professional guidance will help you navigate the process successfully.
