Originally Posted by Hans
how does the mortgage thing work on a new house? always wondered that. what sorta down payment did you have to put down?
The process is somewhat the same...
You get a construction loan. Typically you have to show the bank your drawings, the intentions of the building, etc. They'll approve you up to a certain amount (dependant on your credit, down payment, etc.).
You have a closing based on that set amount. The bank holds the money, however. The contractor will then work with you and the bank to get a "draw". Over the course of a new construction home, most banks limit to 5 draws, or withdraws from the loan you have initiated. So, on a 100K loan, the average draw would be 20K.
Once all the draws are done and the home has been completed and final inspection approved, the loan is converted to a "perm". In the business we call it a construction-perm conversion. The home is basically refinanced at a lower interest rate with conventional terms (30 year fixed, etc.). Construction loans always have a higher interest rate than a conventional note. The downside is you have to pay the closing costs on the conventional loan AND the constuction loan. It can be costly!