If you’re planning on building a custom home, there are likely a number of questions on your mind. What neighborhood should I build in? How many bedrooms do we need? Who should I choose as my building partner? Before you get started, there is one critical question that needs to be addressed: how to get financing.
Where Should I Start Looking for Financing?
Before construction begins, you’ll need to begin researching available construction loans. Like mortgages, construction loans are offered through various lenders and require a thorough credit check and (usually) a down payment. If you’ve already chosen a building partner, ask whether they offer financing directly or partner with a third-party lender that provides construction loans.
What Is the Difference Between a Construction Loan and a Mortgage?
You can think of a construction loan as a big credit card that you use while your home is being built. Once you’ve applied and been approved for a construction loan, you’ll have access to the funds needed to construct your home.
Your loan won’t require payments until money is actually spent. In other words, you may have access to $500,000, but you won’t need to make payments until your custom home builder begins spending the money
After your home is built, you will need to convert your construction loan into a traditional mortgage for the amount remaining on your loan. For example, if you took out a $500,000 construction loan, and you made $100,000 in payments while your home was being built, then your subsequent mortgage would be for $400,000 plus any interest that has accrued. The terms of loan-to-mortgage transfers vary by lender, so be sure to do your research to get the best overall rate.
Am I Prepared to Begin the Financing Process?
Financing a custom home requires thorough preparation. The key to success is understanding all of your options and making a sound decision based upon your research. Here are a few questions to ask yourself to check your financial readiness:
- Is my credit score up to par? What do I need to do to attain the credit score necessary to secure a construction loan?
- What information do I need to collect to make a wise decision about financing my custom home?
- What loan options are available to me? What are the terms of various loan-to-mortgage transfers?
- Have I asked my building partner about potential financing options or recommended financing partners?
- Can I afford the necessary down payment on my preferred loan?
These questions will help you determine the overall state of your financial preparedness and help you pinpoint areas that need to be addressed before moving forward.
If you’re ready to move forward with your custom home, contact Castle Brook Builders. Our home-building experts can help you throughout the entire home-building process. For years, Castle Brook has been a top choice among Omaha home builders, and it’s no surprise! Schedule your consultation today and experience the Castle Brook difference for yourself.