Financing a New Construction Home with Revere Homes Preferred Lenders
There is an excitement that comes with building a new home. The plans, the dreams, the ideas you have about furnishings and fixtures, the yard, the future, and memories you’re going to make in your new home. All of that is wonderful but, that excitement can easily be crushed when it comes time to finance your new construction home here in Utah,
A straightforward way to avoid having your dreams shattered is to work with an experienced builder like Revere Homes, that has a great relationship with a preferred lender like Academy Mortgage.
If you’re building your first home, or even if you’re going through the process for a second time, you’re going to have questions, worries, and probably a few fears. With Revere Homes and Academy Mortgage, you’re going to be dealing with folks who have decades of experience, who’ll be able to answer all your questions, calm your worries and quell your fears. Don’t go this alone; talk to Revere Homes and get the advice and the loan that’s right for you.
Financing Your New Construction Home
Financing a new construction home requires a different kind of loan and a different kind of mortgage than purchasing a new home or an older home.
Knowing the difference can save you a lot of time and headaches. It helps to talk to an expert, be that a home builder like Revere Homes or a financial institution such as Academy Mortgage. Knowing which type of loan works best for you and your situation is the first step in building your new construction home and making sure you can survive and thrive financially during and after the home is built.
Let’s start by looking at a few loan options.
A construction loan is a short-term, high-interest loan that provides the money to build a new home. This type of loan usually has a one-year duration, and in that time, the property must be constructed, and a certificate of occupancy must be issued.
This type of loan can be used to cover the cost of land, contractor labor, building materials, permits, and most factors that go into a new construction home. If you’re thinking about applying for this type of loan, talk about it with Revere Homes preferred lenders, Academy Mortgage, and ask specifically what will be included in a loan-to-value calculation.
Importantly, you’ll want to ask your lender if the loan will include a contingency reserve. A contingency reserve covers unexpected costs that may arise during the construction of your new home.
A contingency reserve will also serve as a cushion if you decide to upgrade during the construction process. Say you’re looking at your new construction home plans, and you choose to level up on countertops or cabinets; your contingency reserve will cover those types of changes and upgrades.
Home furnishings are not usually covered with a construction loan; however, permanent fixtures such as appliances and landscaping might be covered. We’ll advise this now and repeat it a few times; ask questions. Always ask your lender questions. Revere Homes’s preferred lenders, Academy Mortgage, have many years of experience, yet they view each customer individually. So, even if you think they’ve heard your questions before, don’t hesitate to ask.
How Does it Work?
Construction loans usually have variable rates that will move up and down with the prime rate. Construction loan rates will also be higher than traditional mortgage loan rates. The reason for this is with a conventional mortgage loan; your house is acting as collateral. If you default on your payments, the lender can simply seize the home.
With a new home construction loan, the lender doesn’t have that option, so these loans are a more significant risk: more considerable risk translates to a higher rate.
Construction loans have a very short timetable, and they depend on the project’s competition. When applying for a construction loan, you’ll need to give your lender a construction timeline, detailed plans, and a realistic budget. When working with an experienced home builder like Revere Homes, they will walk you through all of that and give you all the information and help you need.
Once you’ve been approved for a construction loan, your lender will put you on a draft or draw schedule that follows the house’s construction stages. You’ll typically be expected only to make interest payments during the construction stage.
A construction loan differs from a personal loan where the borrower gets a lump-sum payment. With the construction loan, the lender pays out money in stages as work on the new construction home progresses. A borrower is only obligated to pay interest on any funds drawn to date until construction is completed.
This type of loan gives you the money to build your home and for your permanent mortgage.
In a nutshell, you borrow money to pay for the cost of building your new home; once it’s complete and you move in, the loan converts to a permanent mortgage. There are some benefits to this type of loan; for instance, there is only one set of closing costs, which reduces your overall fees. When the loan switches over and becomes a permanent mortgage, you make payments that cover both interest and principal.
Talk to Revere Homes’s preferred lenders at Academy Mortgage and see if this type of loan is right for you.
Construction Only Loan
This is a loan that provides money for the completion of new home construction only. The borrower is then responsible for either paying the loan in full at maturity, usually a year or a little less, or obtaining a mortgage to secure permanent financing.
The funds on a construction-only loan are disbursed based on the percentage of the project completed. The borrower is responsible only for interest payments on money drawn. A construction-only loan can be a bit costlier as you need a permanent mortgage as well. This is going to mean you will have two separate transactions and two sets of payments.
There are more types of loans available to a borrower, and it’s just a matter of talking to a lender and pinpointing which loan best fits your needs.
Renovation Loan – This is perfect for those who have decided to renovate their current home rather than buy or build a new one. This loan comes in various forms depending on how much money you plan to spend on the renovation.
Owner-builder construction loan – This type of loan is a construction-only loan where the borrower acts as the builder and the owner.
End loan – This refers to the borrower’s mortgage payment after the new home is built. A construction loan covers the costs during the building phase and is repaid once the home is complete. Now, the borrower has a regular mortgage to pay, which is sometimes called an end loan.
How To Get a Home Construction Loan
Although getting a home construction loan appears similar to getting a mortgage, there are a few differences.
When looking to obtain a home construction loan, before application, you will need to meet with the architect or the builder, have plans and specifications laid out, and negotiate with the builder so that the total cost of building the home is laid out. This is going to give you the total amount of the loan for which you’ll ask.
You can expect a lender to review; your employment history, income, income stability, and ability to repay the loan. They will also want to see all plans and specifications. It’s also possible that they will ask for a property appraisal to support the collateral value.
To qualify for a construction loan, you’ll most likely need:
- Good to excellent credit
- Stable income
- A low debt-to-income ratio
- A down payment of at least 20%
Talk To Experts
There’s a lot to think about and a lot to do when looking for a new construction loan, so talk to experts.
The folks at Revere Homes know all about this, and their experience in building new homes and their connections with the most excellent lenders will make the entire process as simple as possible.
Again, as stated before, ask all your questions and keep asking until you’re clear and comfortable with the answers before proceeding. It’s easy to get caught up in the excitement of building a new home, but don’t lose touch with reality.
Working with an experienced and trusted builder like Revere Homes and their preferred lenders like Brad Mabey and Allie Robinson at Academy Mortgage will ensure that you get the right loan for the right home, and the whole process will be simple and stress-free.