August 3, 2021

Best Options For Financing a New Construction Home? (Construction to Permanent Loans vs End Loans)

Best Options For Financing a New Construction Home in Tampa? (Construction to Permanent Loans vs End Loans)

Our trust partner, Robert Hinsch with Hancock Whitney Bank explains mortgages.


I have Robert Hinsch here with me. He's from Hancock Whitney. He is our preferred lender. As far as, you know, buyers are coming to buy our homes or perhaps they have their own lot. And they want to build on the lot. They, they need a loan. We're gonna talk about that with Robert as well as, so he can explain, this is the bank and or the financial institution to go for. Thank you for coming. Let's talk about this construction perm loan. If I got a buyer, you know, they have a lot, they said, hey, I got my own lot. 

How do I go about getting a loan in order to build my own home?

- Okay, great question. Well, that's where we use a construction perm program. And just like it sounds, it's construction and then you have a permit. So it's a two-phased loan. 

Your first aspect of it is construction, alright? And that is a portion that while you as a builder are building the home customer is actually covering the cost of the build on the interest-only aspect. So we, as a lender will lend the cost to build using the equity of the property as a down payment. So for a customer, let's just say, they're building a home. It's going to be $500,000. They're not paying interest on the 500,000 all at one time, it's done over a series of draws. 

As the builder is drawing the funds, then they're making payments on just a portion that's drawn. So you start off with a very small monthly payment and it tiers up until you get to the point of the certificate of occupancy. 

At that point, then you'll roll into the permanent loan. The nice thing about that product is, as a customer, you get to lock in your interest rate on the front side, on a home that's not built yet, which is great. So it's a preferred method to build your dream home.

- So you avoid the uncertainties of starting building and not knowing then what the rate's going to be in the future. You just lock the loan today before you build.

- Yes, sir. And for the customer, where that makes sense is, you know, you know what the interest rate is at today. You know what the monthly payment is going to be on that home. There is no guessing, you know what it's going to be. And in the future, if for whatever reason, if rates go down the customer benefits because at the end, when you modify into the permanent loan, your rate will also go down. So you have the potential for a lower monthly payment, but you know going in what's your maximum monthly payments going to look like.

- Wonderful. And also it avoids the mistakes of, of, of thinking, how I'm going to get my money? how I'm going to pay the builder? You know, all of the unknown scenarios, you leave it up to the bank to, you know, fund this construction perm loan, and then the bank will pay the builder. In, in, and the client will be just waiting for the COO basically.

- Correct. After you, you, you have your loan aspect, just like you would any other loan when you go in and buy a home. And then once you close on that loan, we will manage those funds with the builder and keep the customer updated along the way, you know, and again, the money is given out in draws and that's based on when a county comes out and does the inspections on the home.

- Perfect. Now, on the other hand, let's say that we have a buyer that is interested in one of our models. It's completely done. They're coming in. They love the house. Now they need financing and then a loan.

- Sure.

- How can you assist?

- Well, just like any other mortgage, we would work off the total sales price, the amount of money the customer is looking to put down. Of course, we had the full array of products, whether you're looking at your standard 30 year fixed, or a 15 year fixed, or 20 year, if you want an ARM product, we have all those products. So, you know, we'll, we'll customize a loan based on each individual's needs.

- What is the typical time of, of the loan process since the minute that you know, you talk for the first time, and do a prequalification for a buyer until the time that they, they're sitting down on the, on the closing table?

- Well, for planning purposes, I still say for a plan for 30 days. Right now the industry's running about 45 days, but 30 days is still realistic if and when you need that. Typically the loan process from the first phone call to loans going in for the clear to close is usually about 21, 22 days. You've got federal regulations, which require three days, disclosure, and so forth. So from a planning standpoint, if the borrower plans for 30 days, you know everybody should be able to meet that expectation.

- Wonderful. Well, here you have it. If you are in the market to either build on your lot or perhaps buy one, one of our modern homes are already finished. You need to get pre-qualified. You can actually access a construction perm loan if you've been building on your lot. Or get pre-qualified and get the loan approved and occupy the home as soon as possible. In 30 days Robert says he can get you, the funds you need one way or the other. If you want more information about mortgages, construction to perm loans, or regular financing, subscribe or visit us at 

Arjen Home is Tampa Bay's Luxury Modern Home Builder.

Building Tampa Bay's Modern Homes

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