Financing for new-home construction
With housing inventories low, many consumers are considering construction projects for new homes. Mark Wells of Preferred Financial Services answers common questions related to construction financing.
I want to buy a lot and build a new house on it. Can I get a single loan to do all of that?
Yes, but a lot of things need to be coordinated in order to pull it off. Most construction loans will provide funds for a lot purchase, but only if your construction project is ready to start once you have closed on the lot. To use a single loan, you will need your plans completed and your builder contract settled prior to closing on the lot. If you are considering a purchase contract for a lot, you may want to write in a delayed closing date, to give you time to plan the project.
It may be a year or so before I build; how do I buy the lot?
If you are not ready to begin construction, lot loans are readily available. They generally require 20-25 percent down payment, are termed on 15-year amortizations, and have a 1-5 year balloon provision. When you take out a construction loan, the lot loan can be paid off by proceeds from the construction loan.
If I pay cash for the lot, will I have to come up with a lot of additional money for down payment on my construction loan?
No, any equity that you have in the lot will count towards down payment on your construction loan, so you never lose the benefit of any money you have put into the lot.
What percentage of a construction project will lenders finance now?
The “vanilla” construction loan will finance 80 percent of the project’s cost or value, whichever is less. Your 20 percent down payment can be in the form of lot equity or cash contributions.
Does anyone lend more than 80 percent?
In some cases for strong borrowers, 90 percent financing can be obtained. High credit scores, good liquidity, and other compensating factors are considered when exceeding 80 percent on any construction financing.
I found a lot that is owned by a builder and I want him to build my house on his lot. Do I have to buy the lot from him and then get a construction loan?
That is not the best way to structure your deal. If the lot you want is owned by a builder, you and the builder can contractually agree for him to build you the custom home on that lot, and the builder can carry the construction costs to completion. Then, you simply close using a standard purchase mortgage. This has the additional advantage of your being able to obtain the house with as little as 3-5 percent down payment.
I am more than happy to discuss your lot purchase or construction loan, and can be reached at 864-235-9596 or via email at Mark@TheGreatestRates.com.
Or Text Me Now! 864-430-4856
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