The Value of Community Banks in Mortgage and Construction Loans

Distinguishing Between Mortgages and Construction Loans

In today’s fast-paced digital world, where transactions are often conducted with the click of a button, the personal touch of community banks can sometimes be overlooked. However, when it comes to major financial decisions like mortgages and construction loans, the advantages of having an in-person experience at a community bank cannot be overstated. This blog will take a close look at the benefits of using a community bank for your banking needs, as well as distinguish between mortgage and construction loans. 

Community banks play a vital role in providing financial services tailored to the needs of local residents and businesses. Unlike large national banks, community banks prioritize personalized service and building relationships with their customers. This personal touch is particularly valuable when it comes to navigating the complexities of mortgages and construction loans.

One of the primary advantages of choosing a community bank for your mortgage needs is the opportunity for face-to-face interaction with knowledgeable professionals. When you walk into a community bank branch, you’re not just another number in a system. You’re greeted by familiar faces who understand the unique characteristics of your local market and can offer personalized guidance based on your individual financial situation.

This personalized approach can be especially beneficial for first-time homebuyers who may be unfamiliar with the mortgage process. Community bank staff are often more accessible and willing to take the time to explain the various options available, answer questions, and guide customers through each step of the process. This hands-on assistance can help alleviate anxiety and ensure that borrowers feel confident in their decision-making.

Working With Community Banks When Securing Loans

Community banks often have more flexibility when it comes to underwriting mortgages. They have the ability to consider factors beyond just credit scores and income, such as local market conditions and individual circumstances. This can be particularly advantageous for borrowers who may not fit the cookie-cutter criteria of larger financial institutions. Beyond home mortgages, community banks also excel in providing construction loans for those looking to build their dream home or undertake a renovation project. 

Construction loans can be complex, requiring close coordination between the borrower, builder, and lender. Having a local community bank involved in the process can streamline communication and ensure that everyone is on the same page. One of the key advantages of getting a construction loan at a community bank is the ability to work directly with decision-makers who understand the local market. Unlike online lenders or large national banks, community banks have deep roots in the communities they serve and are invested in the success of local projects. This local expertise can be invaluable when navigating zoning regulations, permitting requirements, and other local considerations that can impact the construction process.

Additionally, community banks often offer more flexible terms and competitive rates on construction loans compared to larger institutions. They understand the unique needs of local builders and developers and can tailor loan packages to meet those needs. This flexibility can make a significant difference in the affordability and feasibility of a construction project.

While online lenders and large national banks may offer convenience, there are clear advantages to choosing a community bank for your mortgage and construction loan needs. The personal touch, local expertise, and flexibility offered by community banks can make a world of difference in achieving your homeownership or construction goals. So next time you’re in the market for a mortgage or construction loan, consider the value of banking locally with your community bank.

Mortgage Loans vs Construction Loans

Mortgage loans and construction loans serve different purposes in real estate financing. Here is a breakdown of the differences:

• Purpose:
  • Mortgage Loan: A mortgage loan is typically used to purchase or refinance an existing property.
  • Construction Loan: A construction loan is specifically designed to finance the construction of a new property or the renovation of an existing property.

• Disbursement of Funds:
  • Mortgage Loan: In a mortgage loan, the entire loan amount is disbursed upfront at the time of purchase or refinancing.
  • Construction Loan: Funds from a construction loan are typically disbursed in stages or “draws” as the construction progresses. This is done to ensure that the funds are being used appropriately and to minimize the lender’s risk.
• Interest Rates:
  • Mortgage Loan: Mortgage loans generally have fixed or adjustable interest rates that are determined at the time of loan origination.
  • Construction Loan: Construction loans can have variable interest rates, which may be tied to a benchmark such as the prime rate or LIBOR during the construction period, however they can also be offered as a fixed rate option. 
• Repayment Terms:
  • Mortgage Loan: Repayment of a mortgage loan typically begins immediately after the loan is disbursed, with regular monthly payments over a fixed term (e.g., 10, 15, 20, or 30 years).
  • Construction Loan: Repayment of a construction loan may not begin until the construction is complete. Once construction is finished, the loan may be converted into a traditional mortgage loan with regular monthly payments.
• Loan-to-Value (LTV) Ratio:
  • Mortgage Loan: LTV ratio for a mortgage loan is calculated based on the purchase price or appraised value of the property; whichever is less.
  • Construction Loan: LTV ratio for a construction loan is typically calculated based on the projected value of the property upon completion of construction. This may include the estimated cost of construction plus the value of the land.
• Requirements and Documentation:
  • Mortgage Loan: Mortgage loans require documentation such as income verification, credit history, appraisal of the property, and sometimes a down payment.
  • Construction Loan: In addition to standard documentation, construction loans may require detailed plans and specifications for the construction project, as well as oversight by a qualified builder or contractor that are submitted before loan approval.

Understanding these differences is crucial for borrowers to choose the right type of loan for their specific needs and circumstances.

Jarrettsville Federal Community Bank offers a variety of reliable programs to assist all types of borrowers, from first-time homebuyers to long-term homeowners who are purchasing again or refinancing. Your loan officer will explain these products in detail and help you determine which loan is best for your individual situation.

Fixed Rate Conventional Loans

• Competitive rates and closing costs
• 30, 20, 15 and 10-year terms available
• Easy budgeting and long-term planning
• PMI will be required if a 20% down payment is not made

Construction Loans

• Competitive rates and closing costs
• A single settlement saving you money
• Interest only payments for the first year
• Bank supervises the timeline for the draws

Jarrettsville Federal specializes in single-settlement residential construction loans.  To find out if you qualify, please contact one of our loan specialists.

How it works:

Once your construction loan is approved, the bank, your builder and you will identify milestones of activity and timing in the building plan, and the bank will release a portion of the loan proceeds upon confirmation of reaching each milestone. This is called a draw schedule.

The benefits:

• The Bank supervises the timeline for the money.
• Interest only payments for the first year.
• A single settlement saves you money, one closing on both the loan and the home.

For current rates Click Here. Our loan officers are waiting to work with you today, call us at 410-692-5151 or toll free at 1-800-429-6616 to see how we can help you with your home loan options.