Building a custom home from scratch? For most people, paying for a new home in cash isn’t plausible–which means you have to finance the construction of your custom home some other way. Usually, this means taking out a loan.
Now, when you’re trying to finance a new custom home, all of the standard loan options are available to you via banks, mortgage companies, brokers, and lenders. However, in addition to these standard options, there are other finance tools available exclusively for new home builds (as opposed to resale homes). These include new construction loans and bridge loans.
Find out more about your new construction financing options below!
Types of Loans Available to You
When building a new home from the ground up, you can apply for any of the following loan types:
- FHA loan
- VA loan
- Conventional loan
- New home construction loan (frequently paired with a lot financing loan)
- Single-closing loan (more common)
- Two-closing loan (construction and permanent mortgage are two separate loans; used when a project goes over budget)
- Exclusive financing options from your builder. (Builders often have their own mortgage subsidiaries or affiliate relationships with outside mortgage companies, which means they can give attractive financing packages to qualified buyers. They usually include other enticing sales incentives, as well.)
Things to Keep in Mind for New Construction Loans
If you decide to go with a new construction loan, here are some things you’ll need to know:
- You won’t get your funds all at once. Rather, the bank will schedule installments of 15-20% draws at different stages of the build.
- The bank will first send an inspector to your construction site to ensure all facets of the build are up to code before paying out your draw.
- More often than not, your bank will require a hefty down payment for your construction loan. Expect to put down 20-25% of your projected property value.
- If you currently own a home and are struggling to put together a down payment for your new home, you may qualify for a bridge loan. With a bridge loan, a bank grants you a short-term loan (usually for 6 to 9 months) using the equity in your current home as collateral. Once you sell your current home, you’ll use the money to pay off the bridge loan.
Of course, securing a loan is easier said than done. You’ll need to have all of your ducks in a row before you even apply. Make sure you have a strong credit score and a clear picture of how much per month you can comfortably pay. After all, what good is the house of your dreams if you can’t afford to live in it?
If you have any questions about custom home building or financing, don’t hesitate to call John Falvella Construction Services! We’ll tell you all about our unique financing packages and help you decide which option is best for your needs. Call today!