Dream Home - Build a House - Home Loan Financing

House Under Construction

Find the Right Mortgage

Finding a mortgage that allows you to design and build your dream home takes some work, but it is well worth while. Find the home plans and designs that allow you to design a home that meets all your needs, rather than buying one from a home builder in a new development.

Home Financing

The risks are greater in building your own home, but construction loans can help with any financial complications in managing your project. The main difference between a standard mortgage and a construction loan is the money is released in stages with these loans.

Typically you get a construction loan and then a conventional mortgage loan once your custom home is complete. Many lenders will give you a Construction to Perm mortgage loan, so the construction loan is rolled into a conventional loan when the construction is complete. Shop around to find the best lender that meets your needs. Don't take a lender with an attitude. He is being paid by you for doing his job, and you deserve to have a lender with whom you can have a good working relationship.

How to Manage the Down Payment

The mortgage lender will require you to close the construction loan before your break ground, depending on the size of your mortgage. So, the lender requires a down payment that will have to be paid before the home is complete.

This can be difficult for people as they usually want to use the proceeds of the sale of their current home to make the down payment on their new home. The options are selling your home ahead of time and living in an apartment or getting a home equity loan. However, that means you are paying your current mortgage and a home equity mortgage throughout the construction time.

You probably won’t need to be make interest loan payments, as the builder can quite often role that into the perm or conventional loan. This is a lot to consider before you just jump into building a new home, as your home might take a year to be built. Planning carefully will help avoid all the pitfalls.

Land Cleared for Home

Planning Your Budget

There are other decisions to make as well. If you want to stay in your current home during the building of your new home, you need to know what the lender’s policies are on any outstanding mortgage on your existing property. You would need to prove you have enough income to make both payments.

Planning your budget carefully is also essential. You need to know how much the home is going to cost in total and this must include the land cost, professional fees, building work, and materials. To make sure you know what is involved, it is best to employ an architect for your home plans, a good contractor unless you are able to do that yourself and you must get a survey which will help you choose the exact spot for your new home. A good source for information when you are starting this process is HSH Associates as it is the world’s leading publisher of mortgage and consumer loan information.

Important Considerations

When you are considering the total cost of the home, you will want to use a home mortgage calculator. Use current mortgage rates to estimate your monthly payments, knowing the interest rate could change before your project is complete. You must also consider home owners insurance and house taxes.

A good home builder is essential to reduce cost and get the quality you are want. You will have to pay the loan back no matter how the house turns out. Another vital aspect is getting the right insurance and warranty coverage so you can be protected against the risk of something going wrong. You will also have to cover your legal expenses and closing costs. It is also essential to include an amount for contingency to cover unexpected costs which might arise.

Steps to Take

These are the steps to building your new home:

  • Get approved for a Construction to Perm loan.
  • Close before ground breaking and make the down payment.
  • The home builder will draw from the construction loan which can require your signature to build the house.
  • Interest is accrued only on the amount the builder borrows and will increase with each withdrawal.
  •  Interest only payments are usually rolled into your conventional loan.
  •  When the home is completed, the construction interest will be rolled into your new conventional loan.
  •  Most lenders will give the borrower the option to lock in an interest rate at the closing of the construction loan which will lock in your interest rate usually for 30 days while the conventional loan is being processed.  When interest rates are volatile this can be very important as we all want the lowest possible interest rate.

Thinking of the Future

Even if you plan to live in your new home forever, construct you home with the buying public in mind because this can increase the value of your property.  People are aware when looking at a self built home to buy the homes are typically built to a higher specification than others on the market.  Quality materials are usually chosen, the homes are constructed carefully and more attention has been paid to details.

Builder of New Homes - Time Lapse Home Construction

Summary

People usually feel great satisfaction when their home is complete.  So now that you feel pride and excitement while moving into your dream home.  You found the right mortgage and chose the design for your new home, which makes it uniquely yours.

© 2011 Pamela Oglesby

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Comments 17 comments

rpalulis profile image

rpalulis 5 years ago from NY

I just finished building an 12 foot by 18 foot outdoor kitchen for our soap making, I couldn't imagine building an entire house, there are just so many decisions.


eovery profile image

eovery 5 years ago from MIddle of the Boondocks of Iowa

I would like to build a solar house someday. They are great.

Keep on hubbing!


Pamela99 profile image

Pamela99 5 years ago from United States Author

rpalulis, We put an addition on our house for my mother to live with us and all I can say was it was awful. We really didn't have a good contractor and that is very important. Thanks for your comments,

Eovery, That does sound like a neat thing to do. I would like to say goodbye to my electric bill! Thanks for your comment.


prasetio30 profile image

prasetio30 5 years ago from malang-indonesia

Another great hub from you Pamela. Thanks for writing about this. I want to applied this to my new home. My new home wasn't big enough, it was small but minimalist. Rating Up. Have a great day!

Prasetio:)


msorensson profile image

msorensson 5 years ago

You did a great job. I used to do this but for rehabilitating properties. Thank you.


Pamela99 profile image

Pamela99 5 years ago from United States Author

Prasetio, A new home is great no matter what size. Thanks for your comments.

Msorensson, I appreciate you comments.


anglnwu profile image

anglnwu 5 years ago

Your topic is so timely as we're just in the process of building a house. It has taken us just 3 years(!!) to get the permit to grade the land and now, there are countless decisions to make. Thanks for the tips, there are sure to come in handy.


Darlene Sabella profile image

Darlene Sabella 5 years ago from Hello, my name is Toast and Jam, I live in the forest with my dog named Sam ...

This another of your excellent hubs my darlin friend, and what a dream come true for so many people. Unfortunitly, it will not work for anyone with with less then perfect credit. Rate this way up, good luck my dear friend, love & peace darski


Pamela99 profile image

Pamela99 5 years ago from United States Author

Anginwu, It is really a long term process. Three years seems long and I don't think people often realize how many thing they must think about. Good luck with your home and thanks for your comments.

Darsky, Yes, good credit is a must to build your own home. Thanks so much for your comments. Love and Peace.


Simone Smith profile image

Simone Smith 5 years ago from San Francisco

Wow- construction loans... very cool! I love the idea of designing and building my own home, and appreciate your making this guide!


Pamela99 profile image

Pamela99 5 years ago from United States Author

Simone, I have always wanted to do that also. Thanks for your comments.


akirchner profile image

akirchner 5 years ago from Central Oregon

What a cool subject...Bob has always wanted to build our own house...I fear it might be too late but ya never know!


Pamela99 profile image

Pamela99 5 years ago from United States Author

Audry, Thanks again for your comments.


Hello, hello, profile image

Hello, hello, 5 years ago from London, UK

A fantastically written hub and very helpful to people who need it.


Pamela99 profile image

Pamela99 5 years ago from United States Author

Hello, Thanks you so much for your comment.


Mortgage Broker Maidenhead 4 years ago

Choosing the best mortgage suitably needs to check into the right details of it. It would be best if it is applicable and suits in your preference.


Pamela99 profile image

Pamela99 4 years ago from United States Author

Mortgage Broker Maidenhead, I agree and I would hope that most people do check the details define a mortgage that suitable for them. Thank you for your comments.

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