Jumbo Home Construction Loans
In the grand scheme of things, when it comes to a new home it’s safe to say that the vast majority of people out there would far prefer to build their own unique abode to their personal specifications and needs, as opposed to simply purchasing an existing house that they may just be settling for.
It’s no secret that the time-consuming process of hunting for a new home – especially in this current, highly-competitive market – can be a huge source of stress, aggravation, and heartbreak. With that in mind, the ability to instead buy land, construct your own home from scratch, and include the precise number of rooms, floor plans, and amenities that your heart desires is the dream of pretty much anyone that’s ever wanted a house. And for those individuals, a jumbo home construction loan may be just what they’re looking for.
While many lenders mandate that a borrower must own the land they intend to build their home upon before they can be granted a loan, there are other loan options now that allow borrowers to roll the cost of land and construction into one package. However, if you do already own the land, it can be used as part of the equity for your traditional construction loan.
Before applying for a jumbo home construction loan (one which includes financing for the land), you would first want to set up meetings with your architect and contractor to finalize the plans and cost of your new house. Once that is completed and you have a solid idea of how you want your new abode to look and feel, it will finally be time for you to talk with a lender, who will go over your eligibility and – if you are approved for a jumbo construction loan – assign someone to oversee the progress once construction begins and to disburse payments to the builder.
The general contractor that you utilize will also need to be approved by the lender before work can commence; many lenders keep lists of previously-approved builders they have worked with in the past for clients to consider.
The entire amount of the jumbo loan is not issued to the borrower all at once; instead, payments are directly given to the builder as they reach specific milestones in the construction process, such as laying the foundation or putting together the wooden framework of the house itself. Before the next payment is issued to the builder, the lender will send an inspector to the site to ensure that the job is being carried out adequately and up to code; once that has been ascertained, an additional payment is doled out so that the next phase of work can commence.
However, there can be slight differences in how lenders issue these payments; for example, some may give an initial payment up-front before work has begun, or issue the each round of funds before the next phase of work has started, as opposed to waiting until it has been inspected.
As the home construction process continues, eventually the entirety of the jumbo home construction loan will be paid out; however, one common misconception about jumbo loans is that no additional financing is required, but this couldn’t be further from the truth.
A jumbo home construction loan only covers the purchase of the land and the building of the house upon it; throughout the construction, the borrower will be making payments to the lender, and once construction has been 100 percent completed – although preferably beforehand – borrowers should arrange for permanent financing, as the jumbo loan will now become due. In fact, lenders will want to confirm that you have been at least preapproved for a permanent mortgage before granting you a construction home loan.
Some construction loans have no monthly payment requirement, but instead allow interest payments to the lender to accrue each month, which is then added to the construction loan balance.
Meanwhile, your permanent loan that you have applied and received preapproval for will be sitting idle while the home construction is being carried out. As your home moves closer to completion, it then becomes time to update your loan file, since supporting documentation – such as check stubs, W2 forms, tax returns and bank statements – need to be less than 30 days old, and what you originally submitted will likely have already expired.
Once the home is completed, a new appraisal will be ordered by the lender to see the overall difference in the dwelling’s anticipated value before work began, and it’s new, real-world value now that it’s complete. Once the house has been appraised and a permanent loan obtained, a payoff amount will be requested to pay off the initial construction loan with the funds from the permanent mortgage, which is then paid off with regular monthly payments throughout the term of the loan as with any standard mortgage.