How To Finance Your Dream Home When You Are Ready To Build
Home buyers generally have a conventional set of options when buying a house. Financing is often already in place. Title is a straightforward process. A real estate agent is usually attached to the home the moment it hits the market. But when building a home, buyers will find they have many financing options they wouldn’t otherwise have considered. While this might seem like it has the potential to become confusing and chaotic, the flexibility of having many options often offsets the uncertainty with additional value.
If you are building a home, chances are you have some equity in the land where the house is being built. Improving the land is the best way to increase its value, and that will also increase your equity. By the time you complete the house, this option might pay for itself.
Almost all home builders have existing business relationships with a mortgage company and can usually get preferential rates on homes they build and finance at the same time. This is almost always the best place to start. Even if you don’t buy a mortgage from the home builder’s company, you can use the information they provide as a barometer for any future deals you make.
Borrowing to build is one of the most common financial transactions in business. Whether you are adding to a house or constructing a sports stadium, money borrowed to build something is considered by financial companies to be a fairly safe bet, as you are literally turning their money into a land improvement that can appreciate in value.
One Time Close
Some banks and financial institutions now offer to combine the traditional three-step construction loan process into one omnibus application and approval. It used to be that purchasing the lot, constructing the house and mortgaging the house were considered three different loans. The one-time-close option makes them a single loan used for three purposes.
Just like the equivalent car loan, home buyers can go to their bank or credit union and obtain pre-approval for purchase of a lot up to a certain amount and possibly even combine their lot purchase and home building loan into a single pre-approved amount.
VA Loan Benefits
Veterans can obtain home financing through the Veterans Administration and often use their loan benefits to purchase a home. There is no reason such a loan couldn’t be used to purchase a lot and then build a home on that lot. All the standard caveats apply, of course, when borrowing money.
The process of building a home is a little more complicated than just getting a mortgage and taking the keys. The rewards are greater, but there are also more significant challenges along the way.