Financing a New Construction Home
Whether you are newly married, planning on expanding your family, or just looking for a brand new space – building your dream home is a once in a lifetime experience. BUT… financing a new home can be scary.
The good news is Vision Homes has local lenders that we have dealt with for more than 20 years who understand “OUR” customers as well as us and are able to help this process move as smoothly as it can. Like all areas of our process, we are looking for lenders who CARE about our customers and who want to help our customers.
As a first time homebuyer, you want to be sure you know what to expect before embarking on this journey. Unexpected obstacles can seem daunting for some, and insurmountable for others. While there is a process, understanding the procedures and having a financing plan can help tremendously to inspire a smooth transition from one aspect to another.
Lenders
Direct lenders are where you need to go for the financing of your new construction home. Banks, and credit unions are all considered direct lenders. A direct lender has solidarity, usually offering a more secure rate.
Loans
One of the first things you must consider when it comes to building your dream home is the loan approval process.
First, you will need to figure out how much you can afford. You must plan a budget. To obtain a loan for a new construction build you will need a specialized loan, most commonly a construction loan, usually a ‘single close’ or ‘two-step loan’. Single close loans serve as long-term financing, covering the entirety of the mortgage process. Two-step loans cover the land purchase and construction of the home only. The homeowner will refinance with a conventional loan after the construction is complete.
There are several loan options available, but for a new construction home loan, you will typically want to focus on a construction loan. In order to qualify for a construction loan, you will need to provide all income, debt and asset information.
To even apply for a new construction loan, you will typically need to have a construction or purchase contract signed by your custom homebuilder and/or developer. This contract will have detailed certain things that will have an impact on your loan. These things will include the total contract amount, which will include data which focuses on construction costs, land costs, etc. It will further include the timetable: construction starting times and the projected completion date.
Payments
On the low end, you will need a down payment of between 5-10% of the total cost. So for example: If the total price is $400,000, you will need about $20-40,000 upfront. However, this down payment could be as high as 20-25%. This is not always the case, but it depends on who you get the loan from.
When it comes to ongoing payments, timetables are of the utmost importance. This is because you must account for the interest that builds through the time it takes to build the home. Now, many loan providers actually only charge the interest during the construction process. Others do want principle payments as well as interest.
Things to Consider
If there are any delays associated with the construction, this added time could add to the interest on the loan. Also, if you are paying for living expenses during this time, these costs may be increased or extended.
While these are all things to consider, they should not lead to worry. Delays sometimes happen, and loan fees are negotiated beforehand.
Vision Homes
Do you know how much home you can afford? Here is our easy to use calculator. Fill it out to see what you can afford, which is a first, crucial step when building a home.