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How To Get A Loan To Build Your Luxury Dream Home
Dated: January 12 2021
When buying a home, it can be tough to get precisely what you want. Instead of buying a listed house, why not build one yourself? There are many more perks than you think if you build from scratch, such as lower repair costs, the ability to customize your home to your liking, higher energy efficiency, etc.
How to start the process of getting a New Construction Loan
Schedule a meeting with a lender to see if you can get pre-approved for the amount you are looking for.
Create your wish list (features, amenities, locations, etc.)
Financing procedures will depend if you are buying a spec home or building custom.
Buying in a Development
Spec Home Building: buying from a builder who constructs the same style home over and over. The financing process will be very similar to buying a listed home. Often, the builder can arrange the financing for you or direct you to a lender with whom they have a relationship.
Building/Buying a Custom-Built Home
When building your very own custom home from scratch, you will find you have a few more options at hand. You will need a construction loan, and they aren't as easy to find as you'd think. They're not nearly as many construction loans available as regular home loans are widely available.
Depending on the lender, there are one and two-step loans available. The lesser risk would be the two-step loan, which requires you to obtain an interest-only loan for the construction and then refinancing into a regular mortgage once the house is completed.
Since construction loans are considered a higher risk, you will need good credit and a down payment of 20-25% typically. The down payment cost is determined by the cost of the land and planned construction. If you already own the land, you will be permitted to use it as equity for your loan. The lender also checks the credit of your chosen builder. Drawdowns on your funding are usually given at completion points directly to the builder, verified, and approved by the lender's loan officer first.
Other Funding Options
If you have equity in your home now, the lender has the option to offer you a bridge loan while you wait for your current home to sell. Some may find this risky because your home will have to sell first for this to work, but it can help if you are on a time crunch.
Another valuable option would be to sell your current home and rent while your new construction is being built. Although you have to move twice, it does free up your equity to put towards your new home.
There are many advantages to building your own home, and you will find the pros outweigh the cons in doing so. Don't hesitate to contact us with further questions on how to walk through this process successfully. Good luck, building!
We hope that this overview of How to Get a Loan to build your dream Home has been helpful and look forward to helping you with all your LBI Real Estate Market needs.
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