If you’re an AAFMAA Member nearing retirement — whether from military service or a civilian job — and you plan to build your next home, there are two construction loan products offered by AAFMAA Mortgage Services LLC (AMS) that you’ll want to know about: The Construction Advantage One LoanSM and The Construction Advantage 80 Loan.SM
Construction loans work more like a line of credit than a traditional mortgage. Instead of getting all of the money (your loan) at once, you draw only what you need as construction progresses. Throughout the life of the construction loan, the balance increases.
With shorter term construction loans, the interest charged on construction loans are higher than the interest charged for traditional permanent mortgages. With some construction loans, you may be required to make interest-only payments on the amount you’ve borrowed, but that’s not always the case. The term for construction loans is usually 12 months, but extensions mau be available. Because the lender organization has limited surety, they generally insist on evaluating your finances and credit, inspecting your plans, and using an accredited builder.
Upon completion, an inspector checks the building for compliance to the plan and to local ordinances.
AMS Construction Loan Details
The Construction Advantage One LoanSM , introduced in 2021, can provide financing to buy your lot, build your home, and finance your house with one easy step. “There’s one qualification, one loan closing, and you can finance up to 100%,” says Stacey Daniels, Chief Operating Officer of AAFMAA Mortgage Services LLC. “Just like a VA Home Loan, there’s no down payment required, plus you don’t have to make any payments until the construction is completed.”
This product is VA-guaranteed, providing you with a traditional VA Home Loan after construction. You can also lock your interest rate prior to purchasing your lot. The draws to pay for construction are handled by an escrow department that deals directly with your builder.
This Construction Advantage One LoanSM is available to active duty servicemembers and Veterans with qualified credit and a minimum 640 FICO score. The home must be used as a primary residence and must be a one-unit, stick-build house, new manufactured or modular home. The builder you decide to use must provide a one-year VA Builder’s warranty on the home and provide periodic inspections of the home while under construction. Additionally, construction of your new home cannot start until you close on this loan, a process that can take about 60 days.
The Construction Advantage 80 LoanSM works a bit differently. It requires a down payment and interest-only payments right away that balloon after 12 months. “It’s not what you’d consider permanent financing,” explains Daniels, “so you’ll have to be re-qualified for a permanent mortgage, which could be a VA, FHA, USDA, or conventional loan product.” Using this product entails qualifying twice, having to pay fees twice, and closing twice, she points out.
However, because this loan is serviced by AMS, it offers flexible terms and competitive rates — including up to seven draws to pay your builder as construction is completed and verified. You’ll need a FICO score of at least 680 to qualify.
Regardless of which construction loan product is right for your needs, there’s an obvious upside to building your own home: you’re able to choose when to build and you can have everything you’ve ever wanted (and can afford) in your new home — from the layout, lighting and finishes to paint colors and even doorknobs!
New homes may also offer energy-saving features, such as tankless water heaters, solar panels, and energy-efficient appliances, they will meet current building codes and they can be pre-wired for “smart” technologies. Plus, if your new roof leaks or a pipe bursts, it will likely be covered by the builder for a certain period of time. Always ask about any warranties offered by the builder.
The downside? You may not be able to move in right away. The average home takes 7.7 months to build, according to data from the U.S. Census Bureau's 2018 Survey of Construction. That includes about one month for building authorization and permits, followed by 6.7 months of actual construction, ending with the final walk through. However, with supply delays caused by the COVID pandemic, some new home construction is now taking 12 - 18 months.
How Much Will It Cost?
While the average cost to build a house is $298,000, most homeowners spend $150,000 – $445,000. While you can get a general idea of what you may pay, it's important to keep in mind that there are numerous factors that will impact the cost to build.
For instance, in 2021 lumber prices are driving up the cost to build a home, causing the average price of a new single-family home to increase by nearly $36,000, says the National Association of Home Builders (NAHB).
We’re Here to Help
One unique feature of using AMS for a construction loan is that AMS uses the appraised value of the home, including the equity in the lot, when determining your loan-to-value ratio (LTV). Other lenders might only use the cost of the home. If the home appraises for more than the cost, as the homeowner, you can use that overage as part, or all, of your down payment, reducing your out-of-pocket costs.
If you’d like to learn more about AMS construction loans, please contact us today. You will receive an honest and fair comparison of your mortgage options, including a wide range of low-rate and low-cost mortgages designed to meet your needs. Ensuring you obtain the best mortgage possible is our mission.