Financing is often one of the most critical elements in the construction of your custom home. It can make or break a project, so it’s important to choose the most cost-effective and appropriate financing for your home construction.
Be sure to begin the process of obtaining construction financing early. Otherwise, you may become frustrated because you’ve purchased your land and designed your home, only to discover that you can’t obtain the funding needed to build.
Paying cash is the simplest way to cover the cost of construction, but it’s not an option that everyone has the means to afford. Construction costs vary widely, depending on the size of the home, chosen materials and finishes, and whether you already own the lot or need to finance that, as well.
Another way to finance construction is to establish a line of credit through your bank. The amount of the loan should equal the proposed cost of construction and maybe a bit more if you anticipate making changes during construction that affect your home’s final price.
As construction proceeds, you will then pay for it by writing checks from your line of credit. When your home is finished, you can convert your line of credit to a conventional mortgage for the time period that best suits your needs.
The third way to pay for construction is with a construction loan. Unlike a conventional mortgage loan, a construction loan is short-term and the amount is based on the expected appraised value of the home upon completion. If you already own the lot, then that can be used as equity, making it easier to receive the construction loan.
Still, with all the variables, it can be a complicated process. Landmark Custom Homes knows exactly how to maneuver through the complexities because we regularly work with a variety of lenders to help our clients get construction loans. We meet even the most stringent criteria that the lenders require, including the high quality of our construction, the value of our custom homes, and the fact that we’re an established, reliable custom homebuilder.
Construction loans typically require interest-only payments on the amount of money dispersed to the builder during the various stages of construction. Once the home is completed, the construction loan can be converted to a conventional loan.