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From the Ground Up: Tips for People Financing a New Home

The thought of building a new home comes with mixed emotions; you end up with the house of your dreams, but there is a lot of anxiety that goes along with it. However, working with a mortgage lender that has experience in construction financing and selecting the right builder go a long way toward deflating this balloon of uncertainty.

When you purchase an existing home, you can walk through it, see how it is laid out, feel it, touch it, smell it. When building a new home, most of your “experience” is reliant on plans laid out on paper.

What are some key tips in building a new home?

Location, Location, Location

You can make alterations to your new home later, but once the foundation is in the ground, there’s no moving it, let alone changing your neighborhood, school district or lot size.  Neighborhood Scout is a good place to start with things like researching school districts.

Not All Lenders Are Created Equal

Many mortgage companies and banks do not even do construction-permanent financing.  Some builders will require you to get take-out end loans (they will build the home and you simply purchase the finished product).

When evaluating lenders who offer construction-permanent financing, there are factors to consider beyond rates and terms. This type of financing includes more variables than a standard purchase loan.

Some key questions to ask:

  • How long will you guarantee my end loan rate?  (It takes 4-12 months to build your home; a rate that is only good for 60 days is irrelevant)
  • What is my rate during construction? (It can be different than your end loan rate)
  • If I lock my interest rate and rates are lower when my house is complete, can I get that lower rate?
  • Do you have an equity-advance program that will allow me to start construction on my new home while continuing to live in my current home?
  • Where are your construction loans serviced? (Are they familiar with the local market or sitting two time zones away?)
  • How quickly do you process draw requests? (Nothing will irritate your builder more than delays in payment )

Do Your Homework

Selecting the builder that can best meet your needs is crucial.  Too many times customers get wrapped up in the “price per square foot” comparison, only to find themselves frustrated at the end because, as the old saying goes…. if it sounds too good to be true, it probably is.

Before you even get into pricing, I recommend you:

Choosing the right location, deciding on the right mortgage lender/product, and selecting the right builder are decisions that need to be done right, because they are difficult to “undo.”

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Posted in Banking Basics, Mortgages and Homeownership.

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