Section 6: Construction to Permanent Loan Refinancing
Construction to Permanent Loan Refinancing
The process is similar to a traditional refinance in that it replaces the existing mortgage with a new loan. It is important to remember that when doing a construction to permanent loan you r final loan will vary from borrower to borrower. If you want more information on specific refinance options, click on the link below
Refinancing Options =>
To get started, call, or start your Construction to Permanent refinance quote online.
When Should you Refinance a Construction to Permanent Loan?
In general, you should refinance a Construction to Permanent loan if:
Your Home’s Value Has Gone Up
If you have built equity in your home either by the housing prices rising or paying down your loan it might be a good time to refinance. If you need to lower your interest rate, need cash to pay off debts, or do an additional project on your home then a refinance might be the best option for you.
10 steps to Refinance Your Construction to Permanent Loan
Most borrowers follow the following Construction to Permanent refinance steps:
1. Determine if you still need a Construction to Permanent loan.
The criteria for Construction to Permanent loans changes each year FHFA sets the conforming loan limits. If your existing loan balance exceeds these limits, a Construction to Permanent refinance loan may be your only option.
2. Check your credit scores.
Many Construction to Permanent lenders set the minimum bar at 700 for a Construction to Permanent loan. That’s 80 points higher than the Construction to Permanent minimum, so make sure you check your credit score before you apply for a Construction to Permanent refinance.
3. Make sure your debt-to-income (DTI) ratios are in line.
Construction to Permanent lenders measure your DTI ratio by dividing your total debt by your gross income, and 45% is the standard maximum. That’s significantly lower than the 50% ratio conforming lenders allow.
4. Shop for the best Construction to Permanent refinance rates.
Some lenders specialize in Construction to Permanent loans. Banks may even offer lower rates if you carry large deposit balances with them. Compare loan estimates with at least three to five lenders to make sure you’re getting the best deal.
5. Ask the lender when you can lock in your rate.
Construction to Permanent lenders may require a loan approval before locking in your rate. Construction to Permanent rates change daily, so make sure you know your lender’s lock policy to avoid any surprises in the terms of your rate later in the process.
6. Provide your paperwork promptly.
Because Construction to Permanent lenders don’t allow automated approvals, you’ll have to provide more financial paperwork. Construction to Permanent loans typically take longer to close than standard loans, because a human underwriter is involved in the decision making and is responsible for ensuring the loan meets Construction to Permanent investor standards.
7. Keep your cash liquid.
It’s not uncommon for a Construction to Permanent lender to require proof of six to 24 months’ worth of mortgage payment reserves in a liquid account, meaning it can be easily converted to cash.
8. Plan for a pricey appraisal.
If you’ve got a custom home or a lot of square footage, appraisers may charge more to find comparable homes, and for the extra legwork it will take to measure out and list all the amenities in your home.
9. Notify your escrow officer and loan officer of any trusts in advance.
Lenders want to make sure they can collect on a Construction to Permanent loan if you default, and they may require extra steps to approve any trust your property is held in. Escrow officers may also need a copy of the trust to properly prepare your closing documents.
10. Review your closing disclosure and close.
Like any refinance, you’ll receive a closing disclosure three business days before your closing. Review the paperwork and make sure the numbers are what you expected. If everything looks correct, your loan documents will be returned to the lender, your old Construction to Permanent loan balance will be paid off with the funds from your new Construction to Permanent loan.
Construction to Permanent Refinance Requirements
. At least 20% equity in your home
. A minimum 700 credit score
. Total debt that doesn’t exceed 45% of your income
. No major credit problems in your recent past, such as bankruptcies or foreclosures
. Full documentation of all sources of income including tax returns, paystubs, CPA letters and IRS validation of all filed tax forms
* Requirements may very program to program and lender to lender
How to Get the Best Construction to Permanent Refinance Rates
Construction to Permanent lenders typically set interest rates based on their own standards. Shopping for the best Construction to Permanent refinance rates could save you thousands or even hundreds of thousands of dollars over the life of the loan.
You’ll typically snag the best Construction to Permanent mortgage refinance rates if you:
Have a high credit score.
Although 700 is the minimum, Construction to Permanent lenders may reward higher-credit-score borrowers with lower rates and closing costs.
Don’t borrow the maximum.
Construction to Permanent lenders may offer a lower rate if you’ve built up substantial equity and just want to refinance to save on your monthly payment (and not tap equity).
Avoid niche Construction to permanet loan programs.
Some Construction to Permanent lenders offer special programs to make Construction to Permanent refinance qualification easier, such as using bank statements instead of tax returns to prove income. These flexibilities usually require you to pay a premium in the form of a higher interest rate.
Two Great Construction to Permanent Loan Refinancing Options
Traditional Construction to Permanent Refinance
A Construction to Permanent refinance is simple loan backed by the U.S. Department of Agriculture used to refinance or replace an existing mortgage. Like Construction to Permanent loans, a Construction to Permanent refinance offers fantastic rates, lower costs, and greater flexibility than other programs.
Cash-Out Refinance
A "Cash-Out" refinance is an option for those with a Jumbo loan looking to take advantage of their home's equity to access cash for home improvements, emergencies, pay off debt, or any other purpose.
Thinking about refinancing? Speak with an Orbit Home Loan specialist to discuss your options.
Construction to Permanent Refinance Eligibility
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)
See What You Qualify For