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Buying a new construction home can have many benefits, and it’s definitely worth considering if...
More and more homebuyers are looking into building their own home. When you build your own home, you get to create a home that is built for your lifestyle, your aesthetic, and your unique needs, which is something a lot of people would love to have. But to build your own home, you’re probably going to need a construction loan. Here’s what you need to know about construction loans.
First, construction loans help you finance the building of a new home and cover the costs of the land, materials, permits, and labor.
There are 2 kinds that you’ll run into: 1) construction-to-permanent loan and 2) construction-only loan. A construction-only loan gets repaid to the lender when the building is complete. This is a short-term loan usually with a term of a year or less
A construction-to-permanent loan covers both the construction and the home purchase and transitions to a traditional mortgage once the construction is complete. Typically, homebuyers end up choosing a construction-to-permanent loan to spread the payments for their newly built home out over several years.
If you’re looking at a construction loan, you’ll definitely want to shop around to different lenders and compare rates. Don’t default to the lender your builder suggests because they may not be your best deal! Construction loans usually have higher interest rates because they’re considered “specialty financing” and are riskier for the lender. You’ll need a solid credit score over 620 and a down payment of at least 20% saved up, but again, this will vary by lender. Make sure to do your research before selecting a lender.
If you’re looking at buying a new construction home that’s already been built, it’s important to know that you don’t actually need a construction loan. Construction loans are really just to finance the building of a new home. If the home is already built, then you need your standard mortgage financing.
When it comes to building your own home, there are many things to consider. I’m happy to help guide you through the process and get you up to speed on what you need to know to have a smooth building experience. I'm ready when you are.
