Loan Types
- Lot/Land Loan
- Construction to Perm Loan
- Speculative Loan
- 40-year Term Loan
- Interest Only Loan
- Option ARM
Typically, a lot/land loan is short-term financing, for the purpose of a lot used for future construction this loan finances your land until you can secure an architect, builder and designer.
A loan that combines both construction and permanent financing into one loan with only one closing cost (eliminates separate closing costs) typically a construction can last for a period of 6 – 12 months. When construction is complete, the loan converts to a permanent mortgage. In order to review a construction to perm loan, additional documentation must be provided along with the standard credit and income documentation.
- Purchase contract or settlement statement of the lot
- Builders construction contract
- Builders statement or application
- Copy of builders license
- Line item cost breakdown from builder
- Property profile (description of materials)
- Final plans and specifications
A “spec” is defined as a home being built by a contractor, builder or developer with no guaranteed sale upon completion. These individuals and companies are “speculating” that they will earn a profit when they sell the home. When qualifying for a spec loan, lenders often require a minimum GPM (gross profit margin).
40-year terms spread a loan over 480 months to make the monthly payments more affordable. It is available on almost all loan types and products, credit grades, doc types, LTVs, and property types.
An interest only loan is a non-amortized loan where interest is due at regular intervals and the full principal of the loan is due at the end of the loan term. Interest only loans allow borrowers to increase their purchasing power and/or reduce monthly obligations. Equity for a property with an interest only loan is due to appreciation. Interest only loans are available on:
- All Fixed and ARM loans (exp. 40-year term loan)
- Up to 106% financing
- 620 minimum FICO.
The reason this loan type is called an Option ARM is because every month there are 3 -4 payment options on the mortgage statement. Option ARMs typically have a low introductory start rate, which enables borrowers to qualify for larger loan amounts. ARM refers to adjustable rate mortgage which offer added flexibility.
Minimum Payment: minimum payments can keep your payments affordable, but are not sufficient to pay the interest due. Deferred interest is accrued onto the principal loan amount. Minimum payments are set at 12-month intervals. A payment cap limits how much it can increase or decrease. Interest Only: interest only will avoid deferred interest; interest on the loan is paid based on changes in the ARM index while the principal is paid off when the loan term ends. Fully Amortizing Payment (30 years) with fully amortizing payments both principal and interest are kept on loan schedule, payments are calculated monthly through the fully indexed rate. Accelerated Amortizing Payment (15 years): If you prefer to pay the loan on an accelerated schedule, and can afford higher monthly payments, 15 year payment option allows you to repay the loan twice as fast and save more than half the interest cost of a 30-year loan.
