Just like with most any major purchase, if you’re considering building a new custom home, then you may also need to think about the financing aspects of this endeavor. Knowing what to expect from the new home financing process can make the entire task go much more smoothly.
One of the first things that you will need to consider is the down payment. In many cases, home purchasers strive to put down at least 20% of the overall purchase price. That’s because you may be required to pay for private mortgage insurance (PMI) if your down payment is less than that.
It’s important to also keep in mind that while some aspects of the financing of a newly built home may be similar to that of purchasing an already existing property, there will also be some key differences.
For instance, with a brand new home that you’re having built, it is oftentimes required that you obtain a construction loan. Most new home construction loans will provide you with short-term funding (typically six to twelve months) that is essentially designed for getting you through the building stage of the project. As various phases of construction are completed, you can “draw down” funds from the loan in order to pay for the items that are completed.
It may also be necessary for you to obtain bridge financing. These are also short-term loans – usually with terms of between six and nine months. Bridge financing can help to get you through a financial “squeeze,” such as when you have not yet sold your current home, but require funds for the building of the new one.
Regardless of the type of loan(s) you may need, it will usually be required that you provide the lender with copies of your credit report, income pay stubs, bank statements, and other financial information.
Have more questions about how to get your new custom home financed? If so, just give us a call today to find out more.