5 New Construction Loan Tips To Consider, Before Building Your Dream Home
Building a home is an exciting experience – it gives you the chance to tailor your home based on your lifestyle, budget and family’s needs. However, it should come to no surprise that costs can add up quickly. Most people do not have the cash on hand to pay for new home construction out of pocket – and that is where home loans and financing come into play.
What many people do not realize when first considering the idea of building a home instead of buying an existing one, is that the loan types are different than those of a traditional mortgage. In fact, the process can be a little more complicated.
If you’re feeling a little overwhelmed with the financing options related to building your Dream Home… Don’t be! Our team of home building professionals have put together these 5 Mortgage Tips to help your experience be a more simplified one.
1. Make a Plan
For a lender to approve the purchase of land for new home construction, you will need a detailed plan for the property in place, so that the lender has an idea what you intend to do with it and when.
Your plan for the property can determine the type of loan you need. It may be a while before you can begin construction on your home, in which case you probably need a Lot Loan to purchase the land. However, if you are ready to begin building right away, you can take out a Construction Loan.
2. Get Your Credit in Order
Construction loans are riskier for lenders than home loans because there is no finished structure that you can use as collateral.
Your credit record is not the only criteria that lenders will look at to determine if they will approve your loan, but they will certainly examine it very carefully. Therefore, you should check your reports for any inaccuracies, as well as paying down your existing debts to the extent possible.
3. Save as Much as You Can
Because a construction loan is riskier for lenders than a traditional mortgage, they may demand a down payment of at least 20%, possibly more. You should save for this as well as reserve some left over to handle unexpected building expenses that may come up during the construction process.
4. Choose the Type of Construction Loan
There are several different types of construction loans available, but there are two that are the most common. A Construction-Only Loan is a short-term loan that only covers the costs of construction. Once your home is complete, you have to take out a mortgage to purchase it.
The other type is a Construction-to-Permanent Loan, which converts your construction loan into a traditional mortgage once the home is built. This is a more streamlined option that only requires one closing with it’s attendant fees, but keep in mind, it can mean higher interest rates.
5. Pick the Right Builder
Anything that makes your project seem like less of a risk to lenders can help your loan get approved. Choosing a builder with a strong reputation in the community for consistent, quality work can be a point in your favor.
Gallery Homes is a privately held home construction company with deep roots in the community. We have built more than 500 homes in Volusia County since 2007, and look forward to hearing about your vision for your dream home. Contact our team with any questions – we are dedicated to being responsive to your needs and questions, and honor all of our commitments. Contact us online, or call us directly at (386) 260-0575 today!