A question we received: We are looking for a builder who has a lovely model we would love. Are there any differences in getting financing to build a home versus buying an existing home?
Yes, there are some differences but the process shouldn’t be too painful.
New home construction is financed in three key ways:
- The builder finances the construction.
- You get a construction loan and then a permanent loan that pays off construction.
- You get a combination construction and permanent mortgage.
You should investigate all three because each has advantages.
According to the Mortgage Professor, builder-financed construction can be preferable because the buyer only has to take out one loan. You can be sure if the builder is willing to finance construction that the company has the financial capacity to complete the project. In addition, the builder is highly motivated to complete the project and is taking the risk that the project will be finished on time. Don’t expect a builder-financed project to be modified, at least not much.
If you take a construction loan yourself, you will find that a higher down payment is required with higher interest rates. These construction loans can be much more difficult to qualify for and you’ll need your building plans, construction contract, and cost estimate when you apply.
Combination loans have the advantage of shopping for a loan only once and paying only one set of closing costs, but this type of loan can be complicated and expensive because the lender is making a permanent loan commitment before the home is built, so they will have many terms in place to protect themselves.
Call us if you are in this sort of position. We can help. 626-825-9955, text or call.
Plumbid – a new and innovative way to market and sell your home!
Thanks for reading our post about financing to build a home.
On another matter, we recently sold a private view home for that amount over the list price because of the Plumbid bidding process. And buyers were solid — we made sure they were fully qualified and informed about the property before they could bid. Check here, or call or text the deFazio’s for more information at 626-825-9955. And, if you are moving to Pasadena, we can help you. With more than 50 years of combined experience, we know the territory and can find the best property for you. Visit us at Around Town Pasadena for more about Pasadena restaurants and food, great real estate, art and culture, and shopping and fashion. We post new and exciting features for you four or five times a week.