Most people are well aware that when purchasing a home, unless they plan to complete the transaction by paying cash, getting a home mortgage will be necessary. This typically requires going to a lender, providing them with the necessary paperwork and documentation, and being approved for a certain dollar amount to borrow.

How the Mortgage Process Differs When Building a Custom HomeBut when you’re building a custom home, the lending process can work a bit differently – and making sure that all of your financial ducks are in a row can be essential to ensuring that the process goes as smoothly as possible.

The first difference between financing an existing home and financing the construction of a new one is that the standard mortgage won’t do the trick if you need funds for the building of a custom property. One reason for this is because many “traditional” home lenders won’t provide funds for an item that does not yet exist.

Instead, more specialized manners of funding will need to take place. In this case, you will typically have to secure a construction loan. This is a type of short-term loan (usually for one year or less). This loan will help to finance the cost of building the new home.

Similar to getting a home mortgage, you will also likely have to come up with a down payment for the construction loan – and in most cases, this will need to be in the neighborhood of 20, or even 25, percent of the amount you are borrowing.

Once your new home’s construction has been completed, you will usually have a couple of options going forward. These include either 1) refinancing the construction loan into a traditional home mortgage, or 2) obtaining a whole new loan altogether in order to pay off the balance of your construction loan. (This is oftentimes referred to as an end loan).

If you’re thinking about moving forward with building the home you’ve always dreamed of, Contact Us. We’ll walk you through the entire process so that you will be ready to make your dream home real.