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.
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.
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. After all, homes are the most expensive investment we ever make. Make sure you know the details of your coverage.
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.
Buyers are aware when looking at a self built home that these homes are typically built to a higher specification than others on the market. Quality materials are usually chosen, and the homes are constructed carefully. They assume more attention has been paid to details.
Builder of New Homes - Time Lapse Home Construction
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.
The copyright, renewed in 2018, for this article is owned by Pamela Oglesby. Permission to republish this article in print or online must be granted by the author in writing.