Using Escrow For Your Construction Loan
February 8, 2024
If you have started talking to construction lenders, escrow is likely a term you have encountered in your discussions. However, some aren't sure what escrow is or why it is necessary.
Escrow is basically an account used in conjunction with an agreement between you and the lender. The account prevents money from going directly to the borrower and facilitates the payment of third-party services and materials where applicable.
This can be an important aspect of getting to closing day, but there's more to escrow than a single use. We examine the details below.
Using Escrow When Building A Home
Did you know escrow is typically necessary for any single-close construction loan? One reason for this is the fact that construction loan funds can't go directly to the borrower. Instead, the money is placed in escrow and the lender and borrower approve "draws" from the account to pay for labor and materials.
Escrow is needed if you add an energy-efficient mortgage option to your One-Time Close mortgage. The same rules for this add-on to the loan apply, no money goes to the borrower, with lender and borrower agreeing to each draw used to pay for materials and labor.
Escrow, Property Taxes, And You
Many borrowers think about using escrow to pay their property taxes, once the construction project has finished.
However, some home loan transactions may actually require escrow to do so. You're building your dream home today, but what about when that loan is paid off or close to being paid off, and you decide you want to consider a reverse mortgage when the time is right?
Your terms and conditions on a reverse mortgage include the ability to apply for a loan, allowing you to take cash out at closing time. With reverse mortgages, the loan usually comes due when the borrower dies or sells the home.
Typically, no payments are due until the loan is declared due as long as the terms of the agreement are followed.
But among the conditions of some reverse mortgages is that you, the borrower, must remain current on property taxes as a condition of reverse mortgage approval. In these cases, escrow may typically be required.
Falling behind on property tax obligations is technically a violation of a reverse mortgage contract. The reverse mortgage could be declared due in full if property taxes are delinquent.
Other Escrow Account Options
Aside from your construction loan needs, there are other uses for an escrow account. You can pay other types of taxes from your escrow account, including the following where permitted:
We have extensively researched the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) One-Time Close Construction loan programs.
We have spoken directly to licensed lenders that originate these residential loan types in most states, and each company has supplied us with the guidelines for their products.
We can connect you with mortgage loan officers who work for lenders who know the product well and consistently provide quality service.
If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders to raise awareness about this loan product and to help consumers receive higher-quality service.
We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA and VA One-Time Close Construction Program only allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes).
In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Contact Us: Send Us Your Request – Spam Safe - FHA / VA One-Time Close
Please send your email request to [email protected], which authorizes OneTimeClose.com to share your personal information with one mortgage lender licensed in your area to contact you.
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639), or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you is an eligible veteran, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines.
Most VA lenders will go up to $1,500,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
Escrow is basically an account used in conjunction with an agreement between you and the lender. The account prevents money from going directly to the borrower and facilitates the payment of third-party services and materials where applicable.
This can be an important aspect of getting to closing day, but there's more to escrow than a single use. We examine the details below.
Using Escrow When Building A Home
Did you know escrow is typically necessary for any single-close construction loan? One reason for this is the fact that construction loan funds can't go directly to the borrower. Instead, the money is placed in escrow and the lender and borrower approve "draws" from the account to pay for labor and materials.
Escrow is needed if you add an energy-efficient mortgage option to your One-Time Close mortgage. The same rules for this add-on to the loan apply, no money goes to the borrower, with lender and borrower agreeing to each draw used to pay for materials and labor.
Escrow, Property Taxes, And You
Many borrowers think about using escrow to pay their property taxes, once the construction project has finished.
However, some home loan transactions may actually require escrow to do so. You're building your dream home today, but what about when that loan is paid off or close to being paid off, and you decide you want to consider a reverse mortgage when the time is right?
Your terms and conditions on a reverse mortgage include the ability to apply for a loan, allowing you to take cash out at closing time. With reverse mortgages, the loan usually comes due when the borrower dies or sells the home.
Typically, no payments are due until the loan is declared due as long as the terms of the agreement are followed.
But among the conditions of some reverse mortgages is that you, the borrower, must remain current on property taxes as a condition of reverse mortgage approval. In these cases, escrow may typically be required.
Falling behind on property tax obligations is technically a violation of a reverse mortgage contract. The reverse mortgage could be declared due in full if property taxes are delinquent.
Other Escrow Account Options
Aside from your construction loan needs, there are other uses for an escrow account. You can pay other types of taxes from your escrow account, including the following where permitted:
- County
- City
- Township
- School
- Special District
- Supplemental and corrected taxes
- Other payments (water, sewer, and street assessments, where applicable.)
We have extensively researched the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) One-Time Close Construction loan programs.
We have spoken directly to licensed lenders that originate these residential loan types in most states, and each company has supplied us with the guidelines for their products.
We can connect you with mortgage loan officers who work for lenders who know the product well and consistently provide quality service.
If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders to raise awareness about this loan product and to help consumers receive higher-quality service.
We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA and VA One-Time Close Construction Program only allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes).
In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Contact Us: Send Us Your Request – Spam Safe - FHA / VA One-Time Close
Please send your email request to [email protected], which authorizes OneTimeClose.com to share your personal information with one mortgage lender licensed in your area to contact you.
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639), or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you is an eligible veteran, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines.
Most VA lenders will go up to $1,500,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
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