What Type of Loan Do I Need To Build a House?

Texas New Construction Homes

Right now finding a home that provides everything you and your family need can prove to be more difficult than expected. Even with mortgage interest rates lower than ever, you still need the right property to purchase. Whether you’ve found the perfect neighborhood to settle down in or you want to try your hand at managing a construction project, now is the perfect time to find the loan that works for your needs.

Getting the exact number of rooms you want with the perfect sized yard and enough amenities to keep everyone comfortable will make your home a hotspot for neighborhood hangouts and barbecues. While this a dream for any homeowner, building a house from the ground up isn’t something that most of us are able to cover out of pocket. So what’s the next step?

Breaking Away From Traditional Mortgages

If you’re lucky enough to find your dream home on the market, getting a mortgage is easy enough with the right team. Having good credit and enough income to accommodate a mortgage payment, you can take advantage of the insanely low rates. The reason getting a conventional mortgage is easier than financing construction is that you’re borrowing money for an existing building. When the money is going towards something that doesn’t yet exist, lenders are often more hesitant to sign off on a loan.

You’ll Need To Secure a Construction Loan

In order to finance your new home construction, you’ll have to explore options for a self-build loan. The terms on a construction loan are very different from your regular mortgage. Typically, these loans have much shorter periods that rarely exceed 12 months. The entire cost of building will be covered but with a higher variable rate.

Don’t let a variable rate or shorter term scare you, construction loans are able to be refinanced into a permanent mortgage or replaced with a loan that offers better terms. Down payments do tend to be higher for construction loans, typically 20-25% of the construction costs. Even though the down payment is higher, it’s still a fraction of the overall cost that needs to be saved up in order to achieve your dream home.

There Are More I’s to Dot and T’s To Cross

Preparing to apply for a construction loan is going to take a lot more means taking many extra steps compared to your regular mortgage. It’s all part of showing the lender that the risk they are taking on a new project is a calculated one. They need to know that you’re taking a serious and educated approach towards construction.

To give your application the best chance, you’ll need to have:

  • a timeline for the project from start to finish
  • details on how the funds will be distributed within the budget
  • professional floor plans often drafted by an architect
  • and a comprehensive list of materials

Once every step of the construction project is outlined and accounted for, lenders will be much more confident in your ability to successfully complete construction and develop a property worth giving a loan for. Don’t let your dream home be a dream any longer.

If you have any questions about mortgages or want to see what you could qualify for, contact one of our experts here on the Potempa Team today.

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