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After you are approved the building process begins. This is normally done in five stages with five draws. A draw is done when the builder completes a phase of the construction and requests money to be paid to him for this- a draw. An inspector would be sent out to the site to ensure the construction that the builder is requesting to be paid for is done and is done correctly. You would sign off on this as well before the builder would receive payment- protects you.
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HOME VALUE- Your money is loaned against a certain value. If your LTV (Loan to Value) is 90%- you would receive 90% of this (higher) value. Normally this is priced against the “Acquisition Price.” This is the contract amount. If you are approved to 90%, you would receive 90% of that amount.
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YOUR PROGRAM- I will set you up on a program that will base the loan amount using the Appraised Value NOT the Acquisition Price. As I am sure you know, when your house is finished it will be worth more than your contract price. The value would increase. This is called appreciation. Your loan will be based upon this price, which will be higher than the Acquisition Price. This will reduce the amount of money you will need to put down on the property.
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PAYMENTS- for the construction period you pay interest only on the amount of the money that has been loaned up to that point, not the entire loan amount.
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RATE- during the construction period you pay prime plus one- only on the amount you have used so far, not the entire loan amount.
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PRICING- I will set up your loan to protect you against rate increases using a “Range Protector.” As I am sure you know rates are moving up and the rates will most likely be considerably higher in a year from now than they are now. With this option you would be protected.
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HOW IT WORKS- After you sign all the paper work AND I have the signed contract, I will lock your rate. Your rate will have a ceiling on how much it can float up and how much it can float down. You are protected with this program against the volatility in the markets we are currently experiencing. Obviously the longer it takes to lock your rate, the higher the risk of rates moving up on us.
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COST- This “Range Protector” program is ½ a point (percent) upfront; HOWEVER, when your construction is completed and your loan converts to a standard loan this money, 1/2 point, is credited back to you!
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LOAN TYPE- you will be doing an 80/10/10. This means 80% for the first loan, 10% for the second and 10% down payment.
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HOW THIS REALLY WORKS- Due to us going off the appraised value (higher than your contract value- acquisition price) the second loan may not be needed.
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YOUR CURRENT HOME- The sale of your current home will also give you cash, further eliminating the need for the 10% second with an 80/10/10.
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I NOW HAVE TWO MORTGAGES- All that is required is that your realtor writes a letter, on their letterhead, stating what the current market value is for renting your home- what would a tenant pay to live in your home per month. Your house simply would need to be sold by the time your new home is completed and you sign your final documents.
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HOW MUCH DO YOU BORROW- You can change this amount. Let’s say your total loan amount is $1,000,000. After we sign documents and make this official you sell your home. You have $100,000 profit from the sale of your home. You can bring this $100,000 to the final document signing and your loan would now be $900,000 not $1,000,000 and you would avoid taxes on the profit from the sale of your home. This process is called principal reduction.
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