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It would seem that construction activity is still fairly high based upon the number of calls that I get from people about construction loans. There are a lot of calls from people just getting started, as well as from a number of seasoned "construction veterans." In a large number of those calls, I hear some common questions. So I thought that I 'd answer a few of them here.

Q: How do construction loans work?

A: In general, just like every other loan. You sign loan documents and money is funded into escrow. In the case of a construction loan, only a portion of the total loan is released. The balance is released either in preset "stages" or as workers complete portions of the project according to a budget. The former is called a "draw" system and the latter is called a "voucher" system.

Q: How are the payments calculated and who makes them?"

A: Commercial loans have the added security of an income producing property providing the funds to pay the loan payments. For residential loans, it's the borrower's income. When a property is being built, there is no secondary source of repayment so the burden of payment would normally fall to the borrower. But lenders didn't want borrowers to use up all of their funds in case something went wrong with the project, so they created "interest reserves." This is a chunk of money set aside in the loan to do nothing but make the loan payments during the construction process. The payment is based upon how much money has actually been used or "drawn" at the time the payment is due. This is not the case for private money lenders. They calculate interest on the entire amount of the loan from the initial funding date.

Q: What's a contingency reserve?

A: This is another chunk of money set aside in the loan to protect you against cost overruns. Since it can take a year or more to complete a project, the prices used to estimate the construction budget become less accurate as time marches on. The contingency reserve is released a little bit at a time during the construction process to cover inevitable price increases.

Q: How do you calculate the maximum construction loan?

A: The maximum construction loan is based upon many factors: Property type, stabilized value at completion, total costs, and equity invested to name a few of the key concerns. For any given property type, there is usually a maximum "loan to costs" and a maximum "loan to value." The key is this: The largest permanent loan for which the property can qualify, assuming it is built and fully occupied or valued, will limit the construction loan. This is because the construction lender wants to be paid off at the end of construction and the way to do that is with a permanent loan. This does not mean that if the permanent loan exceeds the total costs of the project that you can get 100 % construction financing. Just about every lender is going to look for 10 % to 20 % of the total costs to be funded by equity or cash from the borrower.

It would seem that construction activity is still fairly high based upon the number of calls that I get from people about construction loans. There are a lot of calls from people just getting started, as well as from a number of seasoned "construction veterans." In a large number of those calls, I hear some common questions. So I thought that I 'd answer a few of them here.

Q: How do construction loans work?

A: In general, just like every other loan. You sign loan documents and money is funded into escrow. In the case of a construction loan, only a portion of the total loan is released. The balance is released either in preset "stages" or as workers complete portions of the project according to a budget. The former is called a "draw" system and the latter is called a "voucher" system.

Q: How are the payments calculated and who makes them?"

A: Commercial loans have the added security of an income producing property providing the funds to pay the loan payments. For residential loans, it's the borrower's income. When a property is being built, there is no secondary source of repayment so the burden of payment would normally fall to the borrower. But lenders didn't want borrowers to use up all of their funds in case something went wrong with the project, so they created "interest reserves." This is a chunk of money set aside in the loan to do nothing but make the loan payments during the construction process. The payment is based upon how much money has actually been used or "drawn" at the time the payment is due. This is not the case for private money lenders. They calculate interest on the entire amount of the loan from the initial funding date.

Q: What's a contingency reserve?

A: This is another chunk of money set aside in the loan to protect you against cost overruns. Since it can take a year or more to complete a project, the prices used to estimate the construction budget become less accurate as time marches on. The contingency reserve is released a little bit at a time during the construction process to cover inevitable price increases.

Q: How do you calculate the maximum construction loan?

A: The maximum construction loan is based upon many factors: Property type, stabilized value at completion, total costs, and equity invested to name a few of the key concerns. For any given property type, there is usually a maximum "loan to costs" and a maximum "loan to value." The key is this: The largest permanent loan for which the property can qualify, assuming it is built and fully occupied or valued, will limit the construction loan. This is because the construction lender wants to be paid off at the end of construction and the way to do that is with a permanent loan. This does not mean that if the permanent loan exceeds the total costs of the project that you can get 100 % construction financing. Just about every lender is going to look for 10 % to 20 % of the total costs to be funded by equity or cash from the borrower.

Today, several seniors are dealing with financial problems. Whether it's medical expenses or additional finances to compensate their social security checks, almost every senior has to deal with these problems. In order to get the help they need, reverse mortgage programs are available. Reverse mortgages are offered by lenders, which will allow you to get the necessary help. If you are considering whether this is a possibility for you or a family member, it's important to know about reverse mortgage rules and other important information before deciding if it is the best option.

Understanding a Reverse Mortgage

Before looking at all of the new reverse mortgage rules, you may be wondering what a reverse mortgage is and how it works. It revolves around pulling cash from the equity in your home. The best part is this isn't something you need to repay until there are mortgage problems. This will help seniors deal with with their living expenses, home improvements, or any other financial issues.

Who Qualifies?

One of the reverse mortgage rules deals with figuring out who can get a loan. In order to qualify you have to own your home and be at least 62 years old. You need to have a small mortgage balance or you should own the home outright. Keep in mind; these cannot be rental homes, because you must live in the home. Getting a hold of consumer information is one of the new reverse mortgage rules that needs to be understood before making a decision.

What Homes are Eligible?

Figuring out what houses can get a reverse mortgage is important as well. The homes that are eligible include single family homes or homes that have 1-4 units. In order to use an unit house for your reverse mortgage, you're going to have to occupy it. Oh, and homes or condos that are HUD approved have a possibility of meeting the requirements.

How much can you borrow?

Knowing what you can borrow through a reverse mortgage is essential. If you take a look at the reverse mortgage rules, the amount will depend on tons of different variables. Lower interest rates can allow you to borrow more, as can a home that is worth more money. You can find online calculators that can help you figure out how much money you will be able to borrow.

We should recommend that you learn as much as you can about reverse mortgage rules and this loan option. Over the years, this approach has become extremely beneficial for seniors. While it all sounds good, you have to get good consumer material and understand the newest rules. In the end, a reverse mortgage could be the solution you need.

It would seem that construction activity is still fairly high based upon the number of calls that I get from people about construction loans. There are a lot of calls from people just getting started, as well as from a number of seasoned "construction veterans." In a large number of those calls, I hear some common questions. So I thought that I 'd answer a few of them here.

Q: How do construction loans work?

A: In general, just like every other loan. You sign loan documents and money is funded into escrow. In the case of a construction loan, only a portion of the total loan is released. The balance is released either in preset "stages" or as workers complete portions of the project according to a budget. The former is called a "draw" system and the latter is called a "voucher" system.

Q: How are the payments calculated and who makes them?"

A: Commercial loans have the added security of an income producing property providing the funds to pay the loan payments. For residential loans, it's the borrower's income. When a property is being built, there is no secondary source of repayment so the burden of payment would normally fall to the borrower. But lenders didn't want borrowers to use up all of their funds in case something went wrong with the project, so they created "interest reserves." This is a chunk of money set aside in the loan to do nothing but make the loan payments during the construction process. The payment is based upon how much money has actually been used or "drawn" at the time the payment is due. This is not the case for private money lenders. They calculate interest on the entire amount of the loan from the initial funding date.

Q: What's a contingency reserve?

A: This is another chunk of money set aside in the loan to protect you against cost overruns. Since it can take a year or more to complete a project, the prices used to estimate the construction budget become less accurate as time marches on. The contingency reserve is released a little bit at a time during the construction process to cover inevitable price increases.

Q: How do you calculate the maximum construction loan?

A: The maximum construction loan is based upon many factors: Property type, stabilized value at completion, total costs, and equity invested to name a few of the key concerns. For any given property type, there is usually a maximum "loan to costs" and a maximum "loan to value." The key is this: The largest permanent loan for which the property can qualify, assuming it is built and fully occupied or valued, will limit the construction loan. This is because the construction lender wants to be paid off at the end of construction and the way to do that is with a permanent loan. This does not mean that if the permanent loan exceeds the total costs of the project that you can get 100 % construction financing. Just about every lender is going to look for 10 % to 20 % of the total costs to be funded by equity or cash from the borrower.