Building a custom home or purchasing a new home while it is still under construction are exciting options for any homeowner. Taking one of these routes, instead of purchasing a resale home, allows you to personalize the details of your space and select many of the finishing touches. However, having this ability also comes with some extra steps in the financing process.
Purchasing a Resale Home
When purchasing a resale home, the financial details tend to be pretty straightforward. You have the opportunity to get quotes with different interest rates and terms from various lenders, brokers, banks, and mortgage companies. Once you find a package that is appealing and offers a reasonable interest rate, you can then move forward with signing the paperwork and purchasing the home.
Financing a Newly Built Home
Let’s say that you find a neighborhood you absolutely love. The builder has already started construction on a house that you think will be perfect for you and your family, but you would like to have a say in finalizing some of the details. When you go this route, you often have the freedom to select finishes such as flooring, countertops, cabinets, and more. The financing for this type of purchase is relatively similar to that of a resale home. You will go ahead and apply for a loan once you sign a contract on the house, but the actual terms of the loan will not be finalized and locked in until the house construction is almost complete.
Building a Custom Home
As you can imagine, everything about designing and building a custom home has more details that need to be addressed. First, you will need to qualify for a construction loan. Since these types of loans are considered riskier than standard loans, it is important that you have excellent credit and the ability to make a down payment of 20-25%. Once you have been approved for the construction loan, which will include the cost of the land and estimated cost of the home, you will typically go to closing for an interest-only loan. After the home construction is complete, you will then go to closing once again to refinance into an end loan.