Are you seeking to move into a new home but finding it difficult to find a house that truly appeals to you? With limited inventory, some homes may meet some of the criteria on your list, but not all. Some turn to financing a new home build to ensure their house meets all their needs.
With a new build home loan, also referred to as a construction loan, you can have your dream home built according to your specifications. Financing a new construction home differs from getting approved for a traditional mortgage. Here’s what you need to know about getting a construction loan, how it works, and how much it will cost.
Financing a new home build can be done quickly with a construction loan. This type of loan, which might also be referred to as a new home build loan, is a short-term loan that provides the necessary financing to have a new home built. Construction loans typically have a higher interest rate than traditional mortgage loans, but as they are short-term, they are paid off much quicker.
If you have been wondering how to finance a new home build, consider taking out a construction loan. A new home build loan can fund a number of things related to a new home build, including not just the cost of the building materials but also the labor involved, any needed permits, and even the purchase of the land.
When financing a new home build, you will need to find a bank or lender that offers construction loans. If the loan is approved, financing is provided in stages, and you can begin using the funds as you need them for financing a new construction home.
As the home is being built, you will repay only the interest on the loan. During construction, an inspector or home appraiser will make routine visits to determine if more funds need to be authorized. When the new home is complete, you will be required to pay off the remainder of the loan.
There are two main types of new build home loans you can apply for. The first and most common is the one-time close loan. With this construction loan, the loan terms, such as monthly payments, interest rate, and length of the construction phase, are pre-determined. When the construction is complete, the loan is then converted to a traditional mortgage, and you begin paying both interest and the principal as initially determined.
The primary benefit of the one-time close loan is that you do not need to apply for a mortgage after the home is built. The two-time close loan differs because you must pay off the construction loan when the home build is complete. Then, if you still require financing, such as for additions or changes to the home that was part of the original plan, you will need to apply for a mortgage. The upside to a two-time close loan is lower rates initially and more flexibility, but the downside is paying closing fees again.
Applying for a construction loan can be tedious, perhaps even more so than applying for a mortgage. You will need to provide ample documentation about your home construction project, a timetable, and a budget that reflects the work to be done.
Working with an experienced builder can significantly facilitate some of the hassles, as they can provide you with all the necessary documentation related to the building details.
It will help if you are also prepared to pay a lender a 20% down payment on the loan. You can alleviate some of the loan cost if the land is already owned or purchased separately, as the land purchase is often one of the most expensive components of financing a new home build. You can often buy land separately with a land loan if need be.
If you are considering building your own home, carefully research and plan to ensure you secure the right type of financing that works for you.
Whether planning your first home purchase or seeking to build a new home, speaking with a knowledgeable and experienced mortgage expert can help you better make an informed decision.
