Q. Are there many special loans available for new construction, or at least specific products?
A. For new construction, the ultimate differences in mortgage products are extended rate locks. The normal lock period for a purchase can range from 15 to 60 days, but oftentimes, new construction needs a longer time frame. Not all mortgage companies offer locks longer than 60 days, so working with a lender who offers these types of programs is vital. Guaranteed Rate offers locks as long as 360 days for new construction.
Q. Do you know of any new products agents might not know about, or if there are any changes to rules/guidelines when it comes to qualifying for these types of loans?
A. The only piece that differs from a normal mortgage qualification is that for the extended locks, there may be a deposit required. The deposit is much like earnest money in the real estate transaction – it is the borrower’s good faith deposit that shows that he/she will work with you through the entire process.
On the mortgage side, when we lock in a rate for a borrower, we are counting on the secondary market side (Wall Street or banks with whom we work) to deliver that loan when the closing occurs. When we don’t deliver, we are penalized for not living up to our lock.
Q. What does it take for clients to qualify for this type of loan?
A. There are no guidelines that are different for borrowers to qualify for new construction. However, there are a few items that will differ in the mortgage transaction/timeline.
First, the appraisal will be “subject to completion,” and more often than not, that means the appraiser will need to verify the home is complete before closing occurs. Mortgages cannot close when the collateral (the home) isn’t 100 percent complete. There are things that are weather-related (landscaping, for example) that may not be able to be complete, but the home itself must show complete.
Second, the documentation within the loan application will need to be updated because credit, income and asset documents all expire after a certain time. It is important to prepare your buyers to understand that the mortgage application will need to be updated the longer the construction time is. Buyers sometimes have the misconception that once their application is approved, it means they’re done. In fact, we still need to make sure the borrowers still have money, their job and haven’t done anything negative to their credit. We take these precautionary steps to ensure that when we go to closing, we are delivering a quality and accurate loan.
Dan Gjeldum is a Senior Vice President with Guaranteed Rate. He has been originating mortgages since 1996 and has been one of the Top 200 Mortgage Originators in America since 2010 (via Scotsman Guide). He and his team take pride in their approach and take their jobs both seriously and personally. Gjeldum serves clients from all 50 states and is considered an expert in both Jumbo financing and New Construction financing by his peers and industry. Gjeldum, his wife and their four children live in Hinsdale.