Does building a home sound like something only other people do? Too complicated and too expensive to even consider? It’s not. With the right financing, construction can be a cost-effective way to get the exact home you desire.
How does a construction loan work?
With a One Time Close Construction loan, a borrower can get the money to buy land, build a home on it, and cover the mortgage on the completed home. And while most traditional construction financing comes with two separate sets of closing costs — one for the construction loan and one to close on the mortgage loan — here, the homebuyer only pays closing costs once. This loan can be used for either full construction or the remodeling of a primary residence for loan amounts up to $1,000,000 for people with credit scores as low as 680. The loans are for both adjustable and fixed-rate mortgages, giving the borrower the option to lock in a long-term interest rate at the start of construction — a big plus given today’s shifting interest landscape.
What’s an ideal scenario for a construction loan?
These loans are good fits for people who want truly custom homes, with involvement in a wide range of design aspects, as these borrowers can choose their own architects and contractors. Often paying the latter group in stages as the project progresses to the borrower’s liking. And it’s a good financing option for people who have time to wait for the homes of their dreams; U.S. Census data shows that it takes an average of 7.6 months to build a home. With owner-built houses, that number goes up to 14.3 months, while build-for-sale homes on average take 6.7 months to complete. The wait is often well worth it!
Why build when you can buy an existing property?
The majority of homebuyers choose existing properties over construction for good reasons: one can buy an existing home and move in much faster (sometimes in as little as 30 days), location isn’t limited to where a borrower can find land, and renovations offer ways to customize existing homes. But building means newness, and so the possibility of needed repairs on everything from roofs to HVAC systems in the near future is much lower. There’s no competition with other potential buyers when one builds, and the construction-loan borrower often ends up with the exact home they want with few compromises.