If you are thinking about buying a home in the near future but don’t see much on the market that meets the needs and wants of your family, you might be interested in building your own home in order to ensure that you end up in a home that has everything you’re looking for. With the economy rebounding and getting stronger each month, construction home loans and new build mortgages are a popular option for many families. There are a lot of misconceptions surrounding construction and new build mortgage
What is a construction or new build mortgage loan? How do they work?
There are several options when it comes to buying a new build home or engaging a builder in the construction of your new home. Construction mortgage loans may either be obtained by the homeowner (you) or by the builder. Since construction homes lack collateral, they can sometimes be more difficult to obtain compared to a conventional mortgage on an existing home. Your lender will often also require
Upon completion of the build of your new
How are construction loans different from conventional mortgage loans for existing homes?
Buying and building have many differences, and that extends to the mortgage process as well. Building a home typically takes many months and perhaps even more than a year from foundation to finalization. While conventional mortgage loans lock in rates for a period of a month or two, which is all the time it generally takes to close on your new mortgage loan, what happens with a construction loan? If you are looking at obtaining a construction or new build mortgage, you’ll want to talk to your prospective lenders about programs they may offer which will lock in your mortgage rates for as long as 24 months so that you can complete your build without having to worry about what your mortgage rate will be at the end of the process.
Additionally, many lenders will require a greater down payment for a construction or new build loan since again, there is no physically collateral yet to secure the loan with. If you own the loan upon which your home will be built, they may act as additional equity for you.