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Jeffrey Harrington Homes is an approved builder for many lending institutions in the Houston area, including most major and local banks as well as many brokers. We have specific contacts with each lender that are responsible for our clients. We are always willing to work with new lenders, but would prefer to work with established relationships whenever possible to minimize the learning curve associated with the peculiarities of each lender’s business practices.
There are three possible loans associated with building a custom home:
Lot Loan – Lot loans are used to secure a lot for the construction of a new home. If you are building within the city of Houston, there will often be an existing home on the lot that will have to be demolished or moved. Sellers will typically want the lot to be closed on within 30 to 45 days. It is infrequent that a seller will allow more time. If you agree to use the lender for the construction and mortgage loan, you will get preferential terms on the lot loan. The construction loan and lot loan will be consolidated into a single loan.
Construction Loan – The construction loan is the money that is actually used during construction of the home and is based on short term interest rates. Think of the construction loan as a line of credit, where your builder is given the money as the home is being constructed, based on levels of completion. Generally, some contingency is built into the loan to handle fluctuations in material costs or change orders requested by the client. At the completion of the home, the amount of money actually used, plus interest charges and any other fees are consolidated and rolled into the mortgage.
Mortgage – The mortgage is based on long term interest rates and may or may not be at an interest rate similar to the lot loan or construction loan. Lenders may offer to do a two time or one time close. A one time close will be where you close on the construction loan and mortgage at the same time. This allows you to “lock” the mortgage interest rate at the start of construction rather than at completion. In very rare instances, clients are able to obtain favorable terms on the purchase of the lot, that then allow us to complete the entire design phase prior to closing on the construction loan. The lot is then paid off with the construction loan, thus saving some closing costs.
We provide our clients with our preferred lenders early in the design process, which then allows them to get preapproved with the lender and determines the maximum amount of loan that our clients can obtain for their home.