It’s an incredible time to get a sweet deal on a brand new house, but are there any good loans for new home construction left, and where will you find the best options?
Types of Loans for New Home Construction
Building a dream home on a dream lot overlooking the ocean or with a spectacular mountain view may be everyone’s fantasy, but you had better check out your financing options before you break out the shovel.
You need to know where to score the best terms, how much you can expect to borrow, and the requirements for different types of new construction home loans, or you could be left with a very expensive hole in the ground and not much else.
Designing and building a custom home from the ground up can be an exciting prospect, but finding construction loans for this type of project is far from easy today. Construction loans have always been one of the riskiest types of lending for banks, and the bust of the early 2000s saw lenders stuck with an incredible number of these loans, while construction loan programs evaporated.
Tip: With construction REOs making up the largest percentage of foreclosure properties on many banks’ books, you may find amazing bargains on homes which were started and never finished.
Still, if you really have your heart set on bringing your custom dream-home to life to your exact specifications, expect to put down more money and jump through a few extra hoops. These loans normally provide funds for acquiring your lot, building and then roll into a permanent loan once it is completed.
New Construction Loans
Many borrowers will find it extremely difficult to obtain construction-perm home loans today. However, this doesn’t mean you can’t find great new construction home loans all over the U.S. for financing brand new condos or homes in developments with custom finishes.
Also known as “end loans,” this puts the financial responsibility of the construction on the builder, allows you to select from a variety of pre-designed models, and select certain upgrades or personalized finishes based on your own tastes. This gives you that new home smell and prestige while making getting a loan a lot easier.
You sign the contract, let the builder go to work, and once the C.O. (Certificate of Occupancy) is delivered, you take out an end loan. Fortunately, these are much easier to qualify for and borrowers can actually use almost any type of conventional loan for this purpose.
For those who simply don’t want to conform and must build their own unique living arrangements but just can’t afford it today, perhaps simply taking advantage of today’s low interest rates and land prices by buying a premium lot or acreage to build on later is the best way to go. Ask about better terms on shorter loans if you plan to build within the next few years.
Is 100% Financing Possible for New Construction Homes?
For those who only need an end loan, there are still numerous choices for finding financing. While conventional loans may be tough to qualify for today, there are a number of attractive options available to first-time homebuyers and move-up buyers alike.
Low or No Down Payment Loans for New Home Construction:
Beware the In-House Lender!
Buyers spending their weekends browsing new communities and condo projects will often find they are offered financing by an in-house loan officer. Tread carefully here.
You may be offered certain “incentives” to utilize these on-site or recommended loan options for new home construction deals. However, this doesn’t always mean they are anywhere near the best deal. They may pressure and try to scare you into using them as they may be illegally gaining kickbacks from these loan officers, but know that they cannot require you to use their preferred lender. You should always shop around and make sure that you are getting the best deal on rates, fees and terms for your personal situation.
4 More New Construction Loan Issues to Watch For
1. Purchasing the model or buying in later project phases can result in overpriced homes that won’t appraise.
2. Builders are incredibly unforgiving if you run past your closing date and will try to keep your deposits. Apply for a loan as early as possible.
3. Some lenders and programs may have restrictions on the communities for which they will make loans.
4. Interest rates could change dramatically before your home is completed. Ask about extended locks and “float-downs” as rates drop.