You've Decided To Build A New Home!
Building a new home is an exciting adventure but requires very different considerations. To help you have the best experience, here are 5 of the most important things to consider.
Requirements for capital
A common mistake that many people don’t realize is you need capital upfront. The capital is needed for the initial down payment on the land/lot, as well as city red tape and permits to start the construction and throughout the build. It’s personal capital that is needed to finance the build to each stage of the construction. The draw mortgage will then advance money (the draw) to pay back the funds used to hit that stage of construction. For example, your capital finances the foundation of the home then the mortgage draw will advance funds to pay back that foundation capital. Then capital is used to get the house to the next draw stage which is generally framing, roofing, doors and windows (knows as “lock-up”) then the mortgage draw pays back the funds used to achieve the stage and so forth.
It is also important to note that the lender will consider the appraised value of the finished product. This value is determined before the project begins. In this example, the completed appraised value of the home would have to be at least $600,000 to qualify. In addition, the client will have to come up with the initial $150,000 to be able to finance the total cost of $600,000.
Additional Notes On Building Your Own Home
When it comes to building your own home and construction loans, here are a few extra things to keep in mind:
- Make your building plans in advance and stick with them to avoid costly changes during construction.
- Depending on the lender, you may have a time frame within which you need to complete construction (typically between 6 and 12 months).
- Construction loans are usually fully opened and can be repaid at any time.
- Interest is charged only on amounts drawn; there are no “unused funds”
- Once construction is complete and project completion has been verified by the lender, the construction mortgage is “moved over” to a normal mortgage