Can You Finance a New Home Build?
Some people prefer the idea of building a new home to purchasing an existing one, because it gives them the opportunity to get everything they want out of their house. If you’re a very particular buyer or have a specific plot of land you’ve been eying, working with a custom home builder in Layton, UT might be for you.
Of course, you still need to figure out the money situation. Unless you’re quite wealthy, you’re almost certainly not going to have enough money to cover the costs of construction for your home, so getting financing will be necessary.
The process of getting a loan for new construction isn’t exactly the same as it is for purchasing an existing home. Here’s a quick overview of what you should know.
Financing your new home construction
People who purchase an existing home will be able to get approved for conventional mortgages, so long as they meet the lender’s standards to do so. This means having a good credit history and reliable income. However, securing traditional financing when you’re building your own home might be a bit difficult to come by. Lenders aren’t as willing to give out cash for a property that doesn’t yet exist, and there are also some risks associated with the construction process that lenders may or may not be willing to assume.
So, if a standard mortgage loan isn’t in the cards, what’s the best route to take?
People building new homes will generally take out construction loans, also occasionally referred to as construction mortgages or self-build loans. This is a more specialized form of financing, and generally is a shorter-term loan designed to cover the costs of building the property.
The rates for these loans will be variable on a broader spectrum than what you’d find from traditional mortgage loan providers. You’ll also probably need to put down a larger down payment than you would for a standard mortgage. Expect a minimum 20 percent down payment for lenders offering construction loans, or even 25 percent. With a standard mortgage, you can get away with putting down a lot less, so long as you then pay private mortgage insurance (PMI). But once the construction process is complete, usually you’ll be able to either refinance that construction loan into a permanent mortgage that you’d then pay off like normal, or you can take out a new loan to pay off the construction loan and get better rates moving forward.
Either way, there are going to be more steps involved in getting the financing you need when taking out new construction, which makes it a more complicated process. That doesn’t mean, though, that you face a lower chance of getting the funding you need, just that you need to be prepared to take some extra steps to get your loans.
If you’re interested in learning more about getting a construction loan, you can talk to a homebuilder in Layton, UT at UpDwell Homes LLC for more information about how the process works and the kinds of rates you can get.