Every month, we get a great Phoenix construction update from Jon Roof, Private Banking Specialist at Mutual of Omaha Bank. The report sums up construction and housing activity in the Valley.
According to Roof, the timing is ripe to start building a custom home or embarking on a large-scale remodel. “Mortgage rates are near record lows and land costs are still moderate,” says Roof. But securing financing still seems to worry many potential buyers. Roof suggests buyers look into a one-close construction to permanent loan.
What is a one-close construction to permanent loan?
A one-close construction to permanent loan is an “all in one” loan that finances both the construction costs and the permanent amortizing loan phases of your buyer’s home. During construction, the buyer is charged interest only on just the amount of money he has drawn to date. At the completion of construction, the loan automatically changes into an amortizing loan of principal and interest, usually over 15 or 30 years.
This type of loan can be used to build a new custom home from scratch or can be used for a major remodel of an existing home.
“There are a number of benefits to a ‘one-close’ loan. The first benefit is that closing costs are reduced, since there is just one closing, one appraisal, and one set of title and loan fees. An additional benefit to the home buyer is that they know even before construction begins that they have their permanent financing in place. That way there is no question of what rates will be, that the appraisal will be adequate, and whether or not they will qualify for the permanent loan when the house is completed. It gives the client great peace of mind to know ahead of construction what their rate will be when the home is completed and also the assurance that they will be pre-qualified even if unforeseen circumstances arise that change their financial situation, ” explains Roof.
There are a number of considerations to think about when picking a one-close loan. These include the bank’s flexibility with construction periods, low loan fees, and quick and easy construction draws. In addition, watch out banks that charge a prepayment penalty and be sure to get competitive rates.
If you would like to learn more about one-close loans, reach out to Jon Roof, Mutual of Omaha Bank, covering all of the Arizona market from our Scottsdale and Tucson offices 520-229-8262.
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