With the real estate market in full swing and new construction popping up all over the country, you might be considering building your own dream home, too. Before you do, make sure you familiarize yourself with new construction home loans.
New Home Construction Financing
Obtaining new construction home loans to build a house is a different process than what is required when you apply for a mortgage for an existing home. A mortgage to build a house is considered much riskier to the lender because there is no finished home to serve as collateral in case the borrower falls behind on the loan. As a result, it can be difficult to qualify.
Most lenders will also require a substantial down payment, contractor bids, and a detailed construction site map and timetable before approving a construction loan. Once you’re approved, the hardest part is over.
Instead of providing the entire amount once construction starts, lenders disburse payments throughout the project at various stages of completion, such as pouring the foundation or framing the home.
Construction to Permanent Loans
Once the construction is complete, the contractors are paid and the homeowner begins making regular mortgage payments.
One of the best types of new construction home loans is a construction to permanent loan. Here, the borrower pays only interest payments until the home Is finished. At that point, the construction loan is rolled over into a permanent loan, so the borrower only has to pay one set of closing costs.
If you want to build a home, a construction to permanent loan will help the process go by smoothly and affordably because it makes it so that you only have to obtain one loan for both the construction of your new home and the mortgage for your home once the home is complete.