Many borrowers, prior to the 2008 housing market crash, sought VA guaranteed construction loans in order to buy land and build a home on that land at the same time. The housing market problems on and since 2008 have resulted in many lenders being reluctant to issue construction loans; you may know (or be one of many) veterans and currently serving military members frustrated by market conditions that make VA construction loans hard to come by.
But with a housing market recovery making national headlines--however slowly but surely--the opportunities for VA construction loans could be returning once more as conditions become more favorable for borrowers interested in these VA mortgages.
You may still have a hard time finding a construction loan in the short term unless you are a very qualified borrower. But for those willing to wait out the housing market, a construction loan guaranteed by the Department of Veterans Affairs has plenty of advantages. What does the VA construction loan require and offer to those about to buy? From the VA official site:
?VA will guarantee a ?construction/permanent home loan,? that is, a loan to finance the construction/purchase of a residence.? The loan is closed prior to the start of construction with proceeds disbursed to cover the cost of, or balance owed on, the land, and the balance into escrow.? The escrowed monies are paid out to the builder during construction.???
VA loan rules add that ?The lender must obtain written approval from the borrower before each
draw payment is provided to the builder.?
One useful feature of the VA construction loan? Amortization. According to the VA Lender?s Handbook, ?The veteran begins making payments on a construction/permanent home
loan only after construction is complete.? Therefore, the initial payment on principal may be postponed up to 1 year if necessary. The loan must be amortized to achieve full repayment within its remaining term.?
Borrowers should also know that a permanent interest rate on the loan is set at closing time, but the lender may offer the applicant a ?ceiling-floor? option featuring a ?floating? interest
rate during the construction period. According to the VA, ?The agreement must provide that at lock-in, the permanent interest rate will not exceed a specific maximum interest rate yet
also permit the borrower to lock-in at a lower rate based on market fluctuations.?
VA loan rules add that the borrower is required to qualify for the mortgage at the maximum rate for these types of VA loans. There are many other features to VA construction loans; we?ll cover them in future posts.
Source: http://www.valoannews.com/veteran-news/va-construction-loans-will-they-make-a-comeback.html
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