Financing Your Remodeling and Home Building in
Southern Maryland
 The first step in financing your new home is to find a lender with whom you are comfortable and to determine the type of loan you wish to pursue. In today's market you have a wide variety of choices in both lender and loan package. Traditional banks and savings and loans, mortgage finance companies, and online mortgage brokers are all competing for your loan business. You may choose from fixed rate mortgages, variable rate mortgages, or construction loans which roll over into a permanent mortgage once the home is completed. Each of these choices offers unique advantages that you should carefully consider before proceeding with the financing process.
Once you've
chosen a lender, they will determine how much money you are qualified to borrow.
This is done during a "pre-qualification" process taking into account such
factors as your income, credit rating, and current debt load. Once you are
"pre-qualified" for a loan of sufficient value the more detailed final approval
process will begin.
To determine the market value of your
planned home, the lender will appraise it based on blueprints, quality of construction,
the property, and the neighborhood. When you are seeking this appraisal it is
important to provide as much information as you can. Even the smallest details can be
significant in determining the appraisal value of a home. At
Chesapeake Living Treasures, we will provide you with detailed blueprints and
maps of the location as well as make ourselves available to answer any questions you or
your lender may have.
What are the differences between fixed and
variable rate mortgages/loans and how would that affect the loan process?
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Fixed rate mortgages, as the name implies,
offer a fixed interest rate for the duration of the mortgage or loan. Rates are set
by banks and investors that buy and sell such loans on the open market. Factors such
as current economic conditions, home construction demand, etc. affect the rate at which
the loan will be made.
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The rates on variable rate mortgages are
typically determined according to an indicator such as U.S. Treasury Bills or a selected
bond index plus a margin that is determined at the time of the loan. Variable rate
loans are reevaluated according to the chosen indicator and the rate may be raised or
lowered, within ranges set at loan signing, at predetermined intervals for the life of the
loan.
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Fixed rate loans offer stability over the
life of the loan and are particularly desirable if you will be in the home for a long time
and rates are favorable.
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Variable rate loans offer lower initial
rates and are often desirable if you plan to resell the property within 3-5 years, are
having trouble qualifying for the full loan amount at the higher fixed rates, or if fixed
rates are likely to become more favorable within 3-5 years of your initial loan.
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The particular type of mortgage/loan you
choose is a highly personal decision which must be made after carefully considering the
risks and benefits of each.
When would I choose a construction loan and
how do construction loans work?
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Current banking regulations prohibit a long
term mortgage from being given on an unfinished building. You may want to take a
construction loan to cover building of the home.
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The collateral for a construction loan is
usually the land upon which you are building. The loan will eventually be rolled
over into a long term mortgage once construction is completed. Sometimes one bank or
finance agent will give you both a construction and mortgage loan. In many cases,
however, you will have a different bank handling each loan.
How, and when, is money paid out under a
construction loan?
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The financing agent pays out a construction
loan in a series of "draws" - scheduled construction loan payments - according
to each institution's normal operating procedures.
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For example, a typical draw schedule may be
paid out similar to this schedule:
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First draw once the foundation is complete
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Second draw to pay for the construction
package materials
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Third draw when the roof is up
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Fourth draw after the siding and windows are
installed
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Fifth draw at the completion of the drywall
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Sixth draw upon completion of construction
and issuance of a certificate of occupancy
Working with someone who has arranged loans
of the type you choose before often expedites the process.
Chesapeake Living Treasures can guide you through the financing process and help
direct you to banks and lending institutions that have experience with the mortgage/loan
package you select.
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