Thinking about building your own dream home? I've recently started the process myself and if you're anything like me one of the first questions to come up is how financing works for a new home.
When I started my process I had no idea if it would even be possible to qualify for a loan to build my new home. After speaking with my dream home consultant and some of the lenders they recommended, I realized it was not only possible but much easier than I had anticipated.
What Kind Of Loan Do I Need To Build A Home
A construction to permanent loan is the perfect loan for building a new home and purchasing land at the same time. This kind of loan is a little different than the normal loan used to buy an existing home. We'll get into all the details below.
What is a construction to permanent loan
The challenge when building a new home is finding a way to finance both construction by a builder and the purchase of the land. While your dream home is under construction the builder is paid directly by the mortgage company holding the loan and you pay only the interest owed on these payments.
Once the home is complete, the loan moves into the permanent phase and operates just like a normal loan, meaning you'll make payments on both interest and the amount of the loan. A construction to permanent loans allows you to take advantage of all the traditional loan programs including USDA, VA, FHA, or conventional loans.
How do I finance land for a new home
Luckily a Construction to Permanent loan lets you finance the entire cost of your new home, including the land. Basically the amount borrowed for the construction can be used for any purpose (within reason) in the purchase of the land. This means you only need one loan to build your dream home!
Down payments for a construction to permanent loan
Down payments typically range from 0% to 5%. Your actual down payment will depend on a number of factors including the type of loan program, your lender, and whether you own your land (tip: if you own your land you may be able to use it as part or all of your down payment). The appraisal of your home will also play into how much you will need for a down payment.
What does my credit score need to be to qualify for a loan
The lending partners at Red Door Homes generally recommend a credit score of at least 620 before starting the pre-approval process. However, some programs like USDA loans may offer loans to borrowers with lower credit scores.
My credit score isn't great, what can I do to fix it
We often hear this question. Many of our customers have had success working with an organization called the National Heavensent Company to repair their credit. The organization was established by a Disabled Veteran in 2005 with a missions to provide mortgage advice and credit repair. Learn more on their website: heavensentcousa.com
At Red Door Homes, we're here to guide you through the process and we are happy to recommend one of our partner lenders to get you started.
I have chosen Daniel McCoy's team at MVB Mortgage for my construction financing and highly recommend them. See the attached article for more information about construction financing and their contact details.
Now that my financing is secured, it's time for me to find my land! Stay tuned for more information on my land search and what I have learned along the way!