Planning to build your dream home from scratch? Get the financing you need to build the entire house with a new construction loan.
At PierPoint Mortgage, we understand that constructing a new home can be an exciting yet stressful experience. That’s why our expert mortgage lenders are here to guide you through the process of securing a new construction loan.
Our team will guide you through the loan terms, including rates, fees, and down payments, to get you the best home building loans.
New construction loans, also known as “home building loans” are used to finance the construction of a new building or home. These loans are typically short-term and are designed to cover the costs of building the structure, including labor and materials.
The process of obtaining a new construction loan can be more complex than getting a traditional mortgage. This is because lenders need to assess the feasibility of the project and the borrower’s ability to repay the loan.
Banks, credit unions, and private lenders are among the most common lenders for new construction loans. It is important to shop around and compare rates and terms from multiple Construction Loan Lenders before choosing a loan.
The construction loan process can be complex and overwhelming, but understanding the steps involved can make the experience less hassle-free. Here’s a general overview of the construction loan process:
Pre-Approval: Apply with Construction Loan Lenders to determine your eligibility for a construction loan and obtain pre-approval.
Choose a Builder: Find a reputable builder and provide them with the pre-approval letter.
Loan Application: Submit a loan application to your lender, including detailed plans and cost estimates from your builder.
Appraisal and Underwriting: The lender will appraise the property and review your loan application to ensure it meets their underwriting standards.
Loan Closing: Once approved, the loan will be closed, and funds will be disbursed to the builder as needed during the construction process.
Construction: The builder will begin construction according to the approved plans, and funding will be released to them in stages as the work progresses.
Final Inspection: Once construction is complete, a final inspection will be conducted to ensure the property meets all building codes and standards.
Conversion: Once the final inspection is passed, the construction loan will be converted to a traditional mortgage.
There are several types of new construction loans that borrowers can choose from, each with its own unique features and requirements. Let’s have a look at some of the most common types of construction loans:
Construction-to-Permanent Loans: Also known as a “single-close” loan, this type of loan combines both construction and mortgage financing into one loan. Borrowers receive funds to cover the construction costs, and once the construction is complete, the loan automatically converts into a traditional mortgage.
Stand-Alone Construction Loans: This type of loan only covers the construction phase of the project and requires the borrower to obtain a separate mortgage once the construction is complete.
Renovation Construction Loans: These loans are designed for borrowers who are renovating an existing property rather than building a new one. They allow borrowers to finance both the renovation and construction costs.
Owner-Builder Construction Loans: These loans are designed for borrowers who plan to build their own homes rather than hire a contractor. They provide funds to cover the construction costs and typically require the borrower to have extensive construction experience.
End Loans: An end loan is a type of long-term loan that is used to pay off a construction loan or a short-term interim loan once the construction is complete. These loans typically have a longer repayment period and a lower interest rate than construction loans because the home is already built and serves as collateral.
Spec Construction Loans: These loans are used by builders and developers to finance the construction or building home without a buyer in place. Once the construction is complete, the property is listed for sale.
It is important to note that the specific requirements can vary depending on the lender and the borrower’s individual circumstances. Borrowers should carefully research and compare their options before choosing a new construction loan.
New construction loan requirements can vary depending on the lender and the specific loan program. However, some basic requirements that borrowers can expect includes:
Good credit score: Construction Loan Lenders typically require borrowers to have a good credit score in order to qualify for a new construction loan. A score of 680 or higher is usually preferred.
Income and employment verification: Borrowers will need to provide proof of income and employment, such as recent pay stubs or tax returns, to demonstrate their ability to repay the loan.
Down payment: Lenders typically require borrowers to make a down payment of at least 20% of the total loan amount. Some Construction Loan Lenders may require a larger down payment.
Detailed construction plan: Borrowers will need to provide a detailed plan and budget for the construction project, including a timeline for completion and a list of materials and labor costs.
Collateral: Borrowers may also require to provide collateral, such as land or completed property, to secure the loan.
Appraisal: Lenders may also access an appraisal of the property to determine its value and ensure that the loan amount is appropriate.
If your construction project takes longer than expected, your lender may require you to extend your construction loan term, which could result in additional interest and fees. It’s essential to communicate with your lender throughout the construction process and keep them informed of any delays or changes.
There are several types of loans that are good for building a house, including new construction loans, end loans, and renovation loans. Each type of loan has its own requirements and benefits, so it’s important to discuss your options with a lender to determine which loan is best suited for your specific needs.
The credit score needed to get a loan to build a house can vary depending on the lender and the type of loan. Generally, a credit score of 680 or higher is recommended for a construction loan, but some lenders may require a higher credit score. It’s important to check with your lender to find out their specific credit score requirements.