If you are thinking of building a new construction versus purchasing a resale, it is helpful to know the mortgage solutions on the market. Financing new homes is very different from that of an older home. The conditions, interest rates, and process will vary. Here are some common home construction mortgage solutions to evaluate.
Construction loans are short-term loans designed to disburse required funds during the construction process. There is typically a schedule for when funds are released and in specific amounts. Particular goals must be met for release of funds to the builder. The costs, interest charges, and other conditions will vary by lender. Construction loans are considered risky, therefore requirements are typically more stringent than other home loans. When building is completed, a permanent loan must take over.
Construction to permanent loans involve just one closing. While the home is being constructed, interest-only charges are usually due. Once construction is finished, the loan transforms into a typical mortgage with usual mortgage payments. Interest rates are often determined at the beginning, however the rate lock for the permanent part of the loan may have a deadline. If the house is delayed, then the interest rate might adjust for the permanent loan.
Builder Financed for Home Construction
Builder financing is the most ideal option for home buyers because no special loan is needed by the buyer. Home buyers are often asked to give a significant deposit and to cover the cost of upgrades out-of-pocket. Buyers must have a loan at closing.
Home Construction Mortgage Solutions
Mortgage solutions available will be based on who owns the land. Buyer-owned land ordinarily need a construction loan of some type. Builder financing is often offered when building in a subdivision. Options will also differ by lender as some have special programs. Connect with your loan officer to understand all of the different home construction mortgage solutions and whether you qualify.