Find Out How a Bridge-to-Perm Loan Can Help You

If you’re looking to build a brand-new home on a lot you own, a bridge-to-permanent loan from Titan Funding of Boca Raton, Florida, could be the perfect loan for you. Bridge-to-perm loans, also known as construction-to-permanent loans or single-close loans, provide all the funding for construction costs and the permanent mortgage. The main benefit is that there’s only one closing. You don’t have to do separate closings for the construction and the mortgage, so you only have one set of closing costs.
When the property is under construction, your payments will be interest-only, and your lender will conduct regular home inspections to check progress. Once you close on the loan, you can use your down payment to fund the beginning of the construction. When you’ve exhausted your down payment, you can start to draw funds from your bridge-to-perm loan. Then, when you’ve completed the construction, you’ll begin paying your standard mortgage.

Construction Loans

Most people are familiar with a standard mortgage loan, but only a few know about construction loans. And regardless of how excited you are about building your new home, the process of funding it can be overwhelming with many unknowns. You can get two different types of construction loans. Your first option is to get a stand-alone construction loan. This is a loan that only covers your construction costs, and once the construction is complete, you need to get a separate mortgage loan.

The second type you can opt for is a bridge-to-perm loan or construction-to-permanent financing, which consists of two loans in one with one set of closing costs. Initially, the loan covers construction costs, and then when it’s complete, it converts to a traditional loan.

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How To Use Your Loan To Cover Construction Costs

Lenders pay out a conventional loan in one lump sum, but they pay construction loans in smaller increments, known as draws. You receive these throughout the construction process. When you take a draw, you then give it to the builder to pay for the construction costs. The draw is a reimbursement, so you or the builder must cover the cost upfront. Before you take a draw, the lender orders an inspection to estimate the potential cost and to ensure the process is progressing as planned. When the builder completes the construction, the total cost passes down to the borrower.

Home Equity Line of Credit Versus a Construction Loan

You can also use a construction loan or a home equity line of credit (HELOC) to improve your home. There are several differences between these two types of loan. First up, a HELOC is a line of credit extended against the equity in your home. It’s a fixed-interest rate loan, with a term usually in the 15- to 30-year range.

On the other hand, a construction loan is only over a few years and will have higher interest rates and payments due to the shorter term. However, the overall interest cost will be much lower for a construction loan than a HELOC because the term for a construction loan is so much shorter than a HELOC.

The Construction Phase and How It Works

Statements, inspections, draws, and disbursements are all things you’ll need to get through in the construction phase. First, you’ll receive disbursements or draws, which are the same thing referred to by different names. Before you receive a disbursement or draw from your loan funds, the lender will order an inspection to check on the construction progress.

As mentioned previously, you, or in some cases, the builder, will have to pay for construction costs upfront. You can then use the disbursement to reimburse you for costs, such as labor and materials. Once you submit a draw or disbursement request, the funds are usually available within a few days.

When you close the loan, you then follow a draw schedule, and you can contact your lender to order an inspection to check to make sure the work done matches the schedule. You can also use the inspection process to ensure that the workmanship is of good quality. Finally, every month after the initial draw or disbursement, you’ll get monthly statements delineating the interest accrued and the amounts disbursed to date.

Converting a Construction Loan to a Permanent Loan

Typically, the construction loan portion of the financing has a term of a few months up to a couple of years. Once the builder completes construction, all draw periods and disbursements conclude, and all parties receive their reimbursement, the construction process finishes, and the conversion will begin. You need to schedule a final inspection to ensure all building codes have been adequately met. The inspector will issue a certificate of occupancy after the inspection is passed.

If you got a construction-only loan, you’d have to search for a mortgage. But in this case, with a bridge-to-perm loan, you’ll already have a loan conversion in place. Next up, you’ll need to schedule an appraisal. A professional appraiser will evaluate the property and compare it to recent sales in your area to assess the value of your home. If there aren’t many comparable properties in the area, it can be tough to appraise your home. The appraisal is critical to securing the conventional mortgage as it’s collateral for the loan.

Now it’s time for the lender to approve the mortgage. You already have the permanent financing in place, and once the appraisal checks out, you’ll begin to make payments on your permanent mortgage.

When you’re ready to start the process of applying for a loan, reach out to the team at Titan Funding in Boca Raton, Florida. Our experts can go over the bridge-to-perm loan options available to you, answer any questions you might have, and guide you through the process. You can reach us on 855-928-0737 from 9 a.m. to 6 p.m. Monday through Friday, or fill out our secure online contact form 24 hours a day, seven days a week.

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