New construction loans are a financial tool that investors or homebuyers can use. These loans cover the land, labor costs, building material, major appliances, and permits. In some cases, the landscaping can be worked into the package also.
To qualify for new construction loans, you will need to supply some financial information to a new construction lender. They will require proof of income. The loan officer may need to see the building plans and the pricing. The agreement may call for you to get an estimated appraisal. This amount will let the lending institution know that there will be sufficient collateral to work with.
Rates and Payouts
One thing that sets new construction loans apart from traditional mortgages is the interest rate. These loans typically have higher rates, and the rates are variable, which means they will fluctuate with the prime.
New construction financing pays out in increments. A new construction lender will pay out portions of the loan as the project progresses. The lender will pay after property inspections. The first payment might be after the foundation is finished. You can expect to have four to six payouts throughout the build.
Types of Loans
You may opt for convertible new construction financing, which means once the home is completed the loan rolls into a traditional monthly mortgage. The advantage of this agreement is the lender will only charge you for one closing, so you only have to pay for one transaction.
Build-only new construction loans require the borrower to pay off the loan once the project is complete or within a set timeframe, which is usually 12 months. With this structure, lenders may make it so that you only pay the interest on the draws. This setup works well for investors and for individuals who plan to move into a regular home loan.
New Construction Lender
When looking for a new construction lender, you will want to find a full-service office. These operations usually work with investors, and they offer multiple loan structures. When it comes to lending agreements, seasoned lenders consider many variables, such as weather, market, and supply. Having flexible loan options from the beginning can save you money and headaches.
If you are an investor, an interest-only loan allows you time to sell the property, and if you plan on living in the house, a convertible loan means you only have to pay one set of closing costs.
New construction loans are flexible and a valuable resource for investors, flippers, and want-to-be homeowners. Experts are available to help you craft the perfect new construction financing package.