New Jersey is known as one of the original 13 colonies and is famous for its Jersey Shore and close proximity to New York City, which is responsible for much of the economic activity of the state.
As would be expected of a state with rising population growth, home prices have skyrocketed 30 percent in the last two years. The median New Jersey single-family home in January 2022 was $551,028, according to New Jersey Realtors Association. A lack of inventory is expected to keep home prices from dropping.
With the increasing demand for real estate and rising prices across New Jersey, people find themselves turning to construction loans to finance the building of new homes. With the prices of homes, it only makes sense to purchase a lot and build the brand new home of your dreams.
However, construction loans are different from the conventional mortgage loans typically used to purchase an existing home.
As you conduct your research, you’ll see construction loans have different rules and qualifying criteria. Before you commit to purchasing a lot and starting a construction project, you’ll want to line up a construction loan ahead of time and make sure you meet the eligibility criteria.
There are loan officers out there dedicated to specializing in construction loans. These industry experts have years of experience working with underwriters to ensure your success in obtaining a loan. They’ll help you navigate the application process, gain pre-approval, and close on the home.
If you’re looking for a construction lending specialist, we can quickly connect you with several options customized to your specific needs so that you can make the best decision for you.
Benefits of a using a construction loan in New Jersey
Construction loans are a short-term financing option used to cover the cost of building a new house from start to finish. Construction loans can cover various costs associated with the process, including the costs of buying land, architect fees for draft planning, permit fees, and the labor and materials necessary to build the home.
Unlike a home loan that is secured by the home itself with home equity, construction loans are financing the cost of something that isn’t built yet – therefore it can’t be collateral. This makes the approval process for a borrower a bit more complex than a traditional mortgage. Expect your lender to want to be more involved in the process. They’ll likely want a clear understanding of the construction timeline, budget, building plans, and your personal financial situation before extending you a construction loan.
Another key difference worth noting is construction loans aren’t distributed as a lump sum. Instead, you’ll receive a series of installments from the lender as various stages of the construction are completed. The lender may require an inspection prior to fund disbursements to make sure everything is moving along as planned.
You’ll typically only be required to pay the interest on the funds as they are drawn. Principal payments won’t be required until construction is complete. At the end of construction, your lender will likely have an option for you to convert the construction loan into a traditional or permanent mortgage.
5 Best New Jersey construction loans
1. Wintrust Mortgage
Wintrust Mortgage is one of the top 20 bank-owned retail mortgage originators in the country that originates in excess of $4 billion in loans annually in all 50 states, including New Jersey.
Recently we asked Wintrust Mortgage to provide us with details on their construction loan options and this is what they said:
- One-Time Closing. Only pay the closing cost once
- Lock in your rate upfront and avoid interest rate risk
- FHA, VA, and Conventional options
- 0% Down up to $822,375 (VA ONLY)
- 3.5% Down up to FHA County Limits ($356,362-822,375)
- 10% Down on Second homes
- FICO credit score of 680+
- Loans must include building no Lot/Land Loans
- Maximum of 10-acres per build site
- Stick Built and Modular Homes ONLY
- NO log homes or metal homes (barndominium)
- Tear Down and Rebuilds do qualify
- No self-build or owner builders. The builder must be approved.
- Does Not allow ADUs (Accessory Dwelling Unit – Granny Flat/Garage Conversions/Basement)
- Now lending in all 50 States
If you’re interested in connecting directly with a loan officer at Wintrust Mortgage that specializes in construction loans, we can put you in touch with them directly.
2. Fulton Mortgage Company
Fulton Mortgage Company specializes in mortgages and has extensive experience in construction loans specifically, although their upper loan rates and limits may not work for some people in New Jersey looking to build houses.
We are in touch with several loan officers at Fulton Bank who specialize in construction loans and here are the details they provided on their construction loan product:
- 10% Down Required (Owned Lot may be counted towards requirement)
- Lot and Construction at the same time
- One time close with rate modification at the end
- Up to $1,500,000 at 80% Loan To Value
- Up to $850,000 at 95% Loan To Value
- Interest-only during construction
- 3/1, 5/1, 7/1, 10/1, and 15/1 ARMs
- 80/10/10 is also available
- Not Eligible for VA and FHA programs
If you’re interested in connecting directly with a loan officer at Fulton Bank that specializes in construction loans, we can put you in touch with them directly.
3. TD Bank
TD Bank is one of the largest banks in the country with over $600 billion in assets, making it the sixth-largest by deposits in the United States. Not surprisingly, TD Bank has a robust construction loan product and should be one that you consider before making your ultimate decision.
We spoke to a TD Bank loan officer who personally closed over $300 million of mortgages last year to learn more about the TD Bank construction loan program. Here are the details:
- 720-740 FICO score desired
- 20% down required on loans up to 1.5M
- 30% down required on loans up to 3M
- One-time close
- Primary or secondary homes are eligible
- Fixed rate and ARMs are available
- Purchased lot considered in the down payment
- No pre-payment penalties
- Interest rate locked before construction begins
- If land has been owned for at least 6 months, we will lend up to 80% of the appraised value of the entire project.
- If land has not been owned for at least 6 months, we will lend up to 80% of the land acquisition cost+cost of construction
- No Condos or Co-Ops. No investment properties.
If you’re interested in connecting directly with a loan officer at TD Bank that specializes in construction loans, we can put you in touch with them directly.
4. Amboy Bank
Amboy Bank is a local bank in New Jersey that has a construction loan product. If you’re looking for a local construction lender, Amboy might make sense for you, although we weren’t able to get a lot of details about their product.
We contacted Amboy Bank and here’s what we were able to learn about their construction loan:
- One Time Close Construction Loan
- Free rate lock
- 1/2 Pay Mortgage allows you to pay biweekly for faster overall payment.
If you’re interested in connecting directly with a loan officer at AmBoy Bank that specializes in construction loans, we can put you in touch with them directly.
5. First Bank
First Bank is a local New Jersey Bank in business since 2007 backed by local investors. They’ve been slowly growing over the years, including a recent acquisition of Heritage Community Bank. As part of their growth, First Bank also offers a construction financing product.
Details are sparse at First Bank on their construction loan but here is what we were able to find out:
- Convertible to permanent financing
- Available for commercial real estate buildings
- Available for major property additions
If you’re interested in connecting directly with a loan officer at First Bank that specializes in construction loans, we can put you in touch with them directly.
Should you consider a construction loan in New Jersey?
Taking out a construction loan in New Jersey offers a myriad of benefits and very little downside. A construction loan allows you to make interest-only payments during the construction phase of the process, resulting in an affordable monthly payment. This can be especially helpful if you’re an existing homeowner making a mortgage payment while you await the new construction to be complete.
While lenders do require you to provide them with specific plans for your project, construction loans are much more flexible with their terms and guidelines than traditional loans. This flexibility allows you to work the terms according to your needs.
The biggest challenge of a construction loan in New Jersey is that the process is different from a typical mortgage, therefore we recommend working with a loan officer that specializes in construction loans.
When seeking a construction loan to build your dream home, you’ll want to work with a money lender who is an expert when it comes to this type of loan, the eligibility criteria and the qualifying process.
If you’re looking to explore construction loans in other states, check out our national guide to construction loans and get started exploring all 50 states.
Josh’s blog has become my one-stop shop for the latest in financial news, strategies, and tactics. There are plenty of other finance and investing sites, but nothing so squarely targeted at lawyers. If you’re a lawyer who wants to better understand your finances and the markets, it’s a must read! —Keith Lee