So what does a homeowner seeking a custom home do these days? You get your own financing and let your financing bank manage the process for maximum results!
OTC or Custom Perm is two step loan consisting of construction (term) and permanent financing (perm) combined into one transaction.
This allows you to reduce your expenses to one set of costs usually associated with two closings. Until recently, it was more common for your builder to obtain construction or interim financing to build the home and then market it. Since so many builders found they could not sell their homes in a declining market, very few builders are proceeding using this model as banks have been forced to reorient how they handle construction projects.
What about Spec Loans?
Spec loans are for Builders who are financing their own project to sell. During the housing crisis, many Spec Builders and Lenders got out of the business altogether. In this scenario, after the home is built, the Buyer gets their own permanent loan. The price you pay includes the builders profit and their cost of doing business while building your home.
While some builders will try to get this form of financing for 'their own home' most banks are also counting on the long term sale. Better for them and you to have a firm contract from the start and nail down the total project up front so there are no surprises. The great thing about building your own home is really having a hand in the design stage to final outcome and knowing the quality of construction from the ground up. Using the OTC (One Time Close) program, you first get qualified for financing for the total 'as built cost to build the home. We use your builder's budget to determine the final cost, including any acquisition land. The OTC loan is closed prior to the start of construction.
Your permanent house payments will not begin until the construction is complete; most often you pay interest only during construction as the balance grows for works complete.
How does it work?
The loan is essentially a set aside of funds available while the house is being built. Your builder will receive construction 'draws' during the process upon monthly inspection of what is completed. This helps you and your builder stay on task. As the construction draws are taken, the balance grows.
Once the construction is complete and the loan is 100% funded, your permanent terms (which you established prior to starting) will convert to the Permanent or traditional mortgage. OTC or Custom Perm can really save homeowner during the building process if it is managed correctly. This also saves your builder from having to qualify for the loan and extend their own credit. Most banks prefer this process as you, the homeowner are carrying the risk long term.
Where can you get an OTC?
Find a specialist OTC custom perm lender or mortgage banker who handles these products and knows what they are doing. Any construction lender worth their salt will have a dedicated and highly experienced underwriting and construction management team to make sure you get the house you paid for!
Enjoy the journey!
2011 copyright susan templeton
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