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What to consider when building

When you are having a home built for you, your loan should be designed for the special needs you’ll encounter with new home construction. Factors such as the builder, location and building specs all play a part in the conditions of the loan. They are also unique because there isn’t an actual building to use as collateral for the loan. The loan amount is primarily based on the blueprints of the home.
When you’re ready to begin the building process, here are some common features of a construction loan you’ll want to consider:

  • Lenders typically require interest-only payments during home construction, with the remaining balance due upon “completion.” Completion for homeowners means that the house has its certificate of occupancy.

  • Home construction loans are usually variable-rate loans priced at the prime rate or some other short-term interest rate. You and the lender establish a draw schedule based on stages of construction, and interest is charged on the amount of money disbursed to date.

  • Determine how much of the project cost the lender is willing to lend. For example, if you already own the land, that can be considered as equity on the construction loan. This allows you the possibility of expanding your dream home plans.

  • Consider utilizing construction-to-permanent financing programs. This converts the construction loan to a mortgage loan after the certificate of occupancy is issued. This means that you only pay application and closing costs once.

  • Discuss purchasing a rate-lock agreement valid through the expected completion of the construction. Depending on your view on interest rate trends, a rate-lock agreement may save you hundreds of dollars on your monthly mortgage payment in the long run. Just make sure you build extra time into your agreement for inevitable construction delays.

Construction loans differ from other home loans because they are so unique to each situation. Our lending experts have the experience necessary to support your home financing needs. We know the market and your community, and we can use our knowledge to make the loan process easy and seamless from prequalification to closing.

Ready to take the next step? Start the process today by completing our online application.
Have more questions? Visit with a Starion Financial mortgage banker today, or learn more about new construction loans.


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