Due to the U.S. economy and the existing home inventory in the banks´ portfolios over the last few years, U.S. banks were only offering purchase mortgages.
Since the spring of 2011 this is starting to slowly change again. Cautiously, banks are beginning to offer occasional programs which will finally offer Foreign Nationals the possibility of building their own individual dream house on their own property.
Regarding the credit check, processing and credit models there are significant differences when it comes to each individual mortgage. In general, here is an overview of the most important ones:
Credit application always prior to construction start
You should always apply for financing before the construction begins. Applying for a mortgage during construction activities or after they have already begun is a very complicated, expensive and time-consuming venture.
Property will be considered as equity
If you should already possess your property you can contribute it to the equity. This means that with a 70% loan to value the total investment amount (new building + property) may require only a possible small payment or no additional payment is due.
Financing bank verifies credit rating, solvency and references of the building contractors
The financing U.S. bank checks not only the foreign borrower but also the construction company in order to minimize the default risk as much as possible. For this the builder has to provide the bank with financial statements, references, and possibly other documents. If construction companies work with a specific bank frequently or on a regular basis they will be put on the corresponding "Approved Builders"-List at the financial institution. This is also an additional security for you.
Inspections done by the bank
In most cases, mortgage loans are made by local banks. The main reason for this is the supervision and inspection of the new construction. As part of the loan requirements, there must be inspections for each of the different construction phases and the corresponding payment methods are fixed and in writing. Prior to the start of construction the down payment is due so that the company can begin with the preparation of the plans etc. Only after the inspector gives his confirmation that all work was done as agreed upon in the contract will the bank give the green light for the next payout to the construction company. This is not only practical, but also extremely important for you if you are not always present on site: Through the inspections performed by the U.S. bank, you are guaranteed that all the work agreed upon in the contract is done and that only those tasks, which have actually been completed, will be paid.
Equity will be used before loan capital
In general there is no commitment interest in the USA. Because of this your loan rates with the financing U.S. bank will be very low during the beginning of the construction phase and will slowly increase with construction progress (pure interest payment, during the construction phase will not be amortized). The last payment to the construction company takes place after the final inspection, for which you too should be present in order to visit your Florida property prior to taking it over and in order to discuss possible last repairs.
When speaking of a classic mortgage, this is referred to as a "Construction/Perm-Loan" in America. "Perm" stands for "permanent", i.e. the mortgage will be automatically replaced at the end of construction with an end loan, via a "Mini"-Closing. The end loan begins with the mini-closing; only at this point do the fixed rates (comprising interest, repayment, insurance and land tax) come to fruition.
For the purchase/new construction of a house within a residential community (gated community) there are usually different prerequisites. Here the new construction will be performed by the residential construction company. The ownership of the house will not be transferred until after construction is completed. The owner equity or the loan funds will be due then as well. The construction will be financed by the construction company. The buyer will therefore apply for classic purchase financing.
Important: Please get in contact with us in regards to whether a mortgage is possible in your Florida region, with your construction company, before signing construction contracts and before having plans made.
In any case one should make sure that the "Finance Contingency" (financing clause) is included in the construction contract. If financing is not possible, whether due to geographical constraints, concerns about the construction company, the credit rating or other reasons, this clause can entitle you to rescind the contract and to the reimbursement of advance payments.