Interviewing Dann Mulder, Lake Michigan Credit Union, how to buy a new construction home in Grand Rapids
Hi, this is Doug Hansen, this is the second video in, “How To Buy A New Construction Home In Grand Rapids”. My name is Doug Hansen. I work with Five Star Real Estate. I’ve been doing this for 26 years. I have Dann Mulder, with Lake Michigan Credit Union and I had been lending for 30 years.
Okay, so this is going to be more about “What Does Lake Michigan Credit Union Need From a Builder In Order To Start Construction”? Probably something you want to know about. The basics that we typically look for is number one, a good licensed builder and someone that we’re familiar with and we get a little information on the builder. Then the other things that we want to get are the plans and specs that you’ve put together with the builder. And then also a sworn statement which is kind of a breakdown of all the construction costs and who the subcontractors will be working on your home.
Okay. What are the requirements for getting a construction loan? The basics are the same as getting a loan is if you were going to purchase, we’re going to look at your income, we’re going to look at your assets and your credit, make sure that you’re a good qualified buyer. And then we have a couple of different ways of going about it.
If you currently own a home, we can look at the possibility of you building the house without necessarily having to sell your house first and if we can do that and that works out great in many cases where you can still live in your current home while you’re building the new one.
What are the income ratios to get a construction loan? Are they the same as getting a regular mortgage? There is a little bit of a restriction on that. The maximum debt ratio that you can get on a construction loan is a 45 percent. So in a lot of cases with different loan programs, you might be able to go as high as 50 percent but with a construction loan that’s capped out at about 45 percent. The reason being, sometimes there can be some fluctuations with construction loans maybe some cost overruns, maybe you add things to the construction and so forth, and we want to make sure that a person doesn’t get overextended. So the maximum debt ratio for a construction loan is 45 percent. Perfect.
And what type of paperwork are you going to require or need from a borrower or a buyer of a new construction home? Well, again, the things that we’ll need from the builder, same things. We’ll need the plans and specs and the sworn statement from the borrower. We’re gonna need their basics like their past couple of years. W2’s, their tax forms, current pay stubs if you’re self employed, maybe a year to date, profit and loss statement, and then also your bank statements, assets, statements, wherever you’re going to be drawing funds from.
Perfect. Last question for you, Dan. Does a person need to put a down payment on a new construction loan you have? If so how much, is it a percentage or a total or a flat fee of, of what the total cost is of the house is going to be? How do you determine that? The lowest that we can go is five percent down on the total project. So, Lake Michigan is one of the few that will go that low.
Typically on a construction loan, it might be 10 percent or 20 percent down. Lake Michigan we’ll do five percent down, which again doesn’t require a ton of money up front from you in order to put the construction loan together. And then once, if you have a current house to sell, when you get to the end, you can take the proceeds from that, pay down on the construction loan before it rolls into the end financing and then you’re good to go.
Alright, this is our second video. The next one is titled how long does it take to get a construction loan? This is Doug Hansen with Five Star Real Estate and Dann Mulder, Lake Michigan Credit Union. We’ll see you next time.