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Do I need 20% down for a construction loan?

by chrislundman from San Antonio, Texas. Jul 31st 2013 Reply


William J Acres (William_Acres)
#73 ranked lender in Arizona - 8,726 contributions

It depends on several factors.. if you are purchasing in a "new home subdivision" where a builder is building track homes, then probably not, as most will only require $1000 - $5000 deposit.. if you're talking about building a custom home, then you might need as much as 30% down.. If you already own the lot and it's free and clear, that could be used as your required equity/contribution.. I will say that there are a lot of things to consider when having a custom home built.. One important thing to consider is the fact that a construction loan is not a mortgage.. You get a construction loan to have the home built, but once construction is complete, you have to qualify for a mortgage to pay off the constriction loan.. Keeping this in mind, one big thing to consider is time frame.. Understand that it takes 6 months to 1 year to build a custom home, and in that time frame a lot can change.. People can lose their jobs, change jobs, get laid off or transferred out of state.. Sometimes people get injured or sick and can't work, and sometimes a co-borrower dies.. All of which can affect the ability to qualify for the mortgage once the home is complete.. I recently had a single man do a construction loan, and in the 9 months it took to build, his employer changed his status from a W2 employee to a 1099 employee (self employed).. because the lender requires all SE borrowers to have 2 full year's tax returns as a SE borrower, his loan was denied... he had no choice but to immediately put the home up for sale so he could pay off the construction loan without going into default.. Understanding all your options before committing is crucial.. For this reason, you should contact a local mortgage broker... sit down with him and let him look at your complete scenario.. Only then will you have a full understanding of your options.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

Jul 31st 2013
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Henry J Daniels, CMPSI, CMHS (HenryJDanielsNationalMortgage)
#1 ranked lender in Texas - 135 contributions

Hi Chris, I do quite a few custom home loans and they can be done for as little as 10% down. I prefer to put my clients into what is called a one time close that minimizes your closing costs that is also your permanent loan after your construction. If you'd like to talk in detail about the option just call our office at 936.228.1944

Jul 31st 2013
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Dave Metsker (DaveMetsker)
#37 ranked lender in Oregon - 2,317 contributions

A free and clear lot often works, also.

Jul 31st 2013
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Pete Bass (PeteBass)
#30 ranked lender in Connecticut - 476 contributions

This depends on if you are building the home and financing the construction costs though "construction to permanent " financing ( which is 20% down withmost banks) or, if the builder is selling you the completed house. If so, then you could go 5% down and even less if you are eligible for a VA loan.

Aug 1st 2013
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Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 3,970 contributions

Generally speaking, yes... but there are too many variables, and not enough information. Many people qualify for as little as 10% down. Talk to a licensed mortgage broker in your area for more assistance.

Aug 1st 2013
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