Want to Build Your Dream Home
If you’re dreaming of building a new house from the ground up, you first need to understand construction loans. Home construction loans are not like most loans and you’ll want to understand how they work, what typical loan terms are and how these loans are different from other real estate loans before going into the process.
Most homeowners are familiar with the typical mortgage loan used to finance the purchase of an existing, already-built home (referred to by some as a “purchase money” mortgage or loan). But conventional purchase money mortgages are different from lot, land and construction loans – both in how they are structured and how lenders underwrite, process and account for them. A fundamental basis for this difference is that, before providing financing for your purchase of vacant land or a construction loan to build your home, a bank needs to understand your plans for the property.
Loans to Buy Vacant Land or a Lot
A lot or land loan allows you to secure your ideal home site so you can continue to get ready to build. You can use the time after you close on the land to plan your new home and its design. If you haven’t partnered with anyone yet, then you can use this time period to find your ideal home builder. Lot and land loans are both harder to find and have less favorable terms than a conventional purchase money mortgage for a home. Although lot and land loans are structured and documented similar to purchase money home loans, be prepared to see shorter-term loans, higher down payments, higher interest rates and additional borrower commitments and underwriting.
New Home Construction Loans
Construction loans typically fund the construction of custom or semi-custom homes from the ground up. When buying either a “Spec” home that already is built or when buying new homes from production builders, a buyer usually would not use a construction loan. In these transactions, if the builder is selling a completed home the borrower should only need a purchase money mortgage to buy the new home and the land on which it sits.
If you are ready to move forward with obtaining financing, see what options you will have. It goes without saying that you should make sure your financial house is in order so that you can make your loan look attractive to lenders.
Early in the process you should try to find a lender or mortgage broker that understands your needs and has experience in the type of loan that you are seeking. Getting pre-qualified will help you understand your budget and other financial limitations.
Robins Financial Credit Union offers the following loans:
- Construction Loans - Finance up to 90% of appraised value at an adjustable 9-month rate. (Terms and conditions apply)
- Land Loans - 5-year fixed, Balloon Mortgage options for land purchases. All of our Land Loans feature low down payments.
Use our free home buying calculator to determine a payment you can afford, or apply for a mortgage loan today with our online application. Our mortgage checklist will ensure you have everything you need to start the application process.
Home construction loans by Robins Financial Credit Union help you go from an empty lot…into your dream home.