Suppose you have decided to build a new home instead of purchasing an existing property. In that case, you will need to secure a new construction loan. This process is a bit different than what you would experience when buying an existing home.

Before selecting a builder, land, and home design, you should meet with a lender to get pre-approved. That way, you will know how much you can afford. Once pre-approved, you need to decide if you want to purchase a home within an existing development or if you want to design and custom-build a home.

The finance process for a home built within a development where the contractor is building many homes, you will follow the same protocols as if you were purchasing an existing home. The only difference is that you will not lock in the loan terms until the construction has been completed.

You will use your own lot and design when you buy a custom-built home. Unless you are paying cash, you will need to secure a construction loan to fund the building process through completion. At that point, the loan will roll over into a traditional home mortgage loan.

There are several options to be considered for your construction loan. A one-step loan requires interest-only payments during the construction process. It then converts to a mortgage upon the completion of construction. The benefit of this type of loan is that you only pay closing costs once.

A two-part construction loan, however, is considered less risky by most lenders. In this scenario, you take out an interest-only loan during construction and refinance it into a regular mortgage upon completion. A more substantial credit rating and a more significant down payment may be required for construction loans. The down payment is determined by the combined cost of the land and construction costs. If you own the land, it can be used as equity in place of part or all of the down payment.

The builder will apply for draws at predetermined phases throughout the construction process. A draw inspector will review the work before disbursement approval.

Before deciding whether to purchase an existing home or build a new one, contact Harbor Classic Homes so they can walk you through the construction loan process. You will find that owning a home that has never been lived in and built to your specifications is within your grasp.