New Construction Loans: 100% of the Building Costs
What is a New Construction Loan?
New construction loans are a type of financing designed for people building a new home. Unlike traditional mortgages, these loans cover the costs associated with the construction process. They are usually short-term and convert to a standard mortgage once the home is completed.
Understanding the ins and outs of these loans can help you make informed decisions. This guide will walk you through the basics.
Construction-only loans provide 100% of the funds for the building cost. Once the home is complete, you will need a separate mortgage to pay off the construction loan. This means you will go through two closings and may incur more fees.
Construction-to-permanent loans combine both the construction and the mortgage into one loan. This type of loan simplifies the process by requiring only one closing.
Once pre-approved, you will work with your builder to create a construction plan. The lender will then evaluate the plan and the builder’s credentials before approving the loan. Funds are usually disbursed in stages, known as “draws,” as construction progresses.
During the construction phase, you will make interest-only payments on the loan. Once the home is complete, the loan will either need to be paid off or converted to a standard mortgage, depending on the type of loan you chose.
They allow you to build a home tailored to your specific needs and preferences. You have control over the design, layout, and features of your new home.
These loans also provide the flexibility to work with a builder of your choice. This can be particularly beneficial if you have a trusted builder in mind.
Challenges to Consider
While there are many benefits, new construction loans also come with challenges. The approval process can be more stringent compared to traditional mortgages. Lenders will closely inspect your financial situation and the builder’s credentials.
Additionally, the construction process can be unpredictable. Delays and cost overruns are common, which can affect your budget and timeline.
Next Steps
Work closely with your builder to create a detailed construction plan. Ensure that your builder is reputable and has a track record of completing projects on time and within budget.
If you're interested in a new construction loan, your first step is to contact us directly. We specialize in this type of financing and can provide personalized guidance tailored to your needs. Let's discuss your options and find the best terms that work for you.