Construction loans are very different from purchase loans. A construction loan is an interest only loan, and the payments are figured on the outstanding balance.
Your builder will be paid at each "completion milestone", which is usually expressed as "this, this, and this are done, so the builder can get the next draw". There are usually five draws over the course of construction.
Since you do not have a completed house while the house is being built, with a construction loan you pay only for the portion of the house that has been completed. Further, with a construction loan, the builder is motivated to go forward, since he knows he can get progressive payments as he completes each phase.
The interest rate is 9.5% if you have good credit, and the lender charges three points (3% of the loan amount). There are few other closing costs beyond the normal tax and documentary stamps that apply to all loans in Florida anyway.
While 9.5% sounds high, in reality it is not. First, US citizens are now paying mortgage rates in the low sevens for owner-occupied homes, and that is for an existing home, not for construction. Second, since you do not have the entire amount outstanding during the course of construction, the effective interest rate is actually closer to 5%, and may be less if the builder is fast.
For instance, if you build a $200,000 home and it takes a year, the average balance is only about $100,000 (zero at the start, $200,000 at the finish, a year later), so your total interest for the year is about $9,500 instead of $19,000. If the builder finishes the house in eight months, your total interest is $7,125, which calculates to only 3.6% per year!
Once the home is finished, there are three options.
1) Convert the loan to "permanent financing" and retain the 9.5% rate, with no closing costs.
2) We can arrange a loan payable in Sterling from the two UK based lenders we deal with for loans on US properties. These lenders won't do construction loans, but now your house is complete, so they will finance it!
3) Arrange other financing as you prefer, such as mortgage a UK property, or pay off the loan with cash.
The lender wants 25% down, and if you already own the land, the value of your equity in the land can be counted toward the down payment.
The lender wants a form 1003 filled out (download here), and will need to see a recent copy of your UK (or other) credit report.
There will need to be a boundary survey, a value appraisal based on the completed building, and some information about your builder (established company with a track record).
Closing is in Daytona Beach, Florida, and cannot be done as a mail-away. Daytona is an hour's drive from Orlando. Alternatively, frequent airline connections from overseas are available connecting through Atlanta. This is a 50 minute flight, and Daytona International airport is MUCH easier to deal with than Orlando International Airport. There is a wide selection of reasonably priced ocean front hotel rooms available (except during race weeks and bike week). Daytona has much less traffic than Orlando, there are quite a few very good restaurants here, and you will enjoy your stay. There are, incidentally, several ways to expense the costs of this trip for tax purposes.
The loan is a discounted loan, which means if the loan amount is $200,000, you will be getting a commitment for $194,000 at closing, and you will need to bring the other $6,000 with you.
You may hold title in your own name(s) or in a Florida Limited Liability Company (LLC).
This loan has no prepayment penalty, and can be paid down or paid off at any time without incurring extra charges.
Finally, the property must be in Florida. (And if you plan to finance it out with BMA, remember they only finance Florida properties.)
Here is what Integrity Financial can do for you:
1) Obtain the construction loan as above. Our fee is 2%, payable on commitment from the lender, but usually collected at closing.
2) Manage the construction draw checks (Builders love this because their checks are mailed locally and they don't have to wait for overseas mail). There is no charge for this.
3) Form a Florida LLC to own the property (if you want to), and act as your Resident Agent. The cost to form the LLC is $500 plus the state fees (about $150), and the annual resident agent fee is $250. You will also need a tax ID number, which will be provided at no additional cost.
4) Introduce you to a Florida accountant to handle the annual LLC state and federal tax returns. The returns must be filed even if there is no profit. You may not owe any tax, but they do want (and expect) to hear from you. There is no charge to make the introduction, and Integrity Financial does not share in any accountant's fees. The accountant's charges are nominal.
5) Transfer and convert your down payment and closing costs from Sterling (or Euros) to USD, the fee is one percent.
6) When the home is finished, obtain Sterling repayable permanent financing from the UK lenders we work with on US properties, or from a US lender of your choice. Standard brokerage fees apply, but this will be significantly faster and much less stressful because much of the information needed will already be on file. You will also not have to pay tax stamps on the deed again since ownership is not changing.
7) When you sell the property, the IRS will automatically withhold 10% of the sale price against possible taxes due. This money (or most of it) can come back to you, and it is why you needed the accountant and the tax ID number. Integrity Financial will coordinate the paperwork at no charge, and convert the refund amount from USD to Sterling (or Euros) and wire it to the bank account of your choice, the fee is one percent of the amount. There are separate accounting charges, see #4 above.
8) Should you need or want the services of an attorney to review the sales contract or the construction contract (highly advisable!) or to attend the closing, we have an in-house Florida licensed attorney for this and any other legal requirements you may have.
Note that we are not a property management company and do not provide property management (rental) services. We also are not a real estate sales company, and do not show properties to prospective buyers or take property for sale listings. We will provide an introduction to a licensed real estate brokerage should you need these services. While we do get a portion of any real estate sales commissions earned, this does not increase the total cost to you.
Return to Home Page5/27/06