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3. Financing
After selecting your contractor, the next step is securing financing for your project. Farm Credit offers one close construction loans. You borrow to pay construction, then, when you move in. Farm Credit converts the loan balance into a permanent mortgage without another loan closing. It’s two loans in one, saving you money and time.
One-Time Close Construction Loans
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• 12-month construction period
• Interest only payments during construction, fixed rate for permanent mortgage (up to 30 years)
• Rate float down at modification if the market has improved
What can you afford?
When considering your construction budget, ask yourself the following questions:
• What is the most you would be comfortable with as your monthly payment?
• If applicable, do you have the cash reserves to make two house payments?
Back-End Ratio
The back-end ratio, also known as the debt-to-income ratio, indicates what portion of your monthly income goes toward paying debts. Total monthly debt includes expenses, such as mortgage payments (principal, interest, taxes, and insurance), credit card payments, child support and other loan payments. It does not include living expenses such as monthly utility bills, groceries or travel.
Back-End Ratio = (total monthly debt expense gross monthly income) x 100
Example: Borrower with monthly income of $5,000 ($60,000 annually 12) and total monthly debt payments of $2,000. This borrower’s back-end ratio, then, is 40% ($2,000 $5,000 = 0.4 x 100 = 40%).
Back-end ratio standards and guidelines vary. Farm Credit typically recommends that the ideal back-end ratio should be 45% or lower. Depending on your credit score, savings and down payment, your lender may accept a higher back-end ratio.
Be prepared to provide:
Personal Information
• Signed, completed application
» Form available at: mafc.com/loans/home-loans
• Borrower’s Authorization Form to release information
• Valid photo identification
• Income verification
» Pay stubs for a one month period within 60 days of application
» W-2s or Federal Tax Returns for the last two years
» Self-employment or commission-based jobs may require additional documentation
» Verification of significant assets for funds needed to cover closing costs or debts not on your credit report
Property Information
• Final signed construction contract, including building plans and specifications
• Legal description of property
• Survey (if applicable)
• Name, address and phone number of seller or land contract holder
• Copy of signed sales agreement (if purchasing land or if land is not already owned)
