Designing and building a new custom home can be exciting. While the process will typically take longer than just simply purchasing an existing property, going through the custom home building process can truly make your new home yours.
In many cases, completing a custom home will require financing. This can include obtaining a construction loan for the project, as well as the cost to actually construct the home. Because a construction loan is oftentimes considered to be more risky than a standard home mortgage, it may require that the borrower have excellent credit. In addition, you may also need to have a 20 to 25 percent down payment on the total amount that is borrowed in order to get the process started.
The amount of your down payment will usually be based on the combined cost of purchasing the land (if you have not already done so), as well as the estimated cost of your home’s construction.
Some lenders will allow you to choose whether you want a separate closing for each type of loan, or if you would instead prefer to close on both of the loans at the same time. In this case, if you go the route of two separate loan closings, you may be able to obtain an interest-only construction loan for the period of time that your new home is being built.
After that, you can refinance the construction loan into a final loan to pay for the entire purchase. In this case, it is important to note that you will typically have to pay closing costs twice.
Conversely, when going with just a single loan closing, you may be still be able to get an interest-only loan for the time that your home is being built, and then convert the loan over into a fixed-rate loan upon your home’s completion. When going with a one-time closing, it will usually be required that an appraisal is done once your home has been completed.
If your plan is to move forward with the building of a new custom home, Contact Us. We can provide you with all of the details you need so that you can move through the process with confidence that your home – and your home’s financing – is set up to work the best for you.