Without proper preparation and the right tools, obtaining a home loan can be a little stressful. The most important thing to realize and remember is that custom home loans are different from home-buying loans. You are basically taking out a construction loan on a structure that does not exist, that will take a longer period of time to build and whose final value will not be known for months or years. This creates a higher risk for the bank, which in turn creates tougher requirements and more scrutiny for you. There are a few things to keep in mind if you are considering a custom build home loan.
Find a Specialist. There are the same guidelines for traditional home-buying loans across the country. However, for custom build home loans or construction loans, each bank has its own approach. Specialists within the bank will also have different experience levels. Due to the uniqueness of the type of loan you are seeking, it is best to work with a lender who has proper experience with custom build home loans. They may have previously learned from mistakes and can assist you with all aspects of the loan as well as anticipate issues. If you need help finding a dependable lender, Craftmaster Homes LC can offer some suggestions.
Be Prepared for Tougher Requirements. As previously mentioned, construction loans are more difficult to get, and as a borrower you need to be in better shape to qualify. Construction loans require a larger down payment than required for a traditional mortgage. Credit qualifications and income level requirements will also be higher.
Be Prepared for Higher Costs. During a lengthy custom home build, more services are required, such as sending out a draw inspector when the builder needs more money and sending out appraisers at least twice throughout the build. This adds to your closing costs, which can be possibly more than twice as much as a home-buying loan. Your lender will be able to provide more detailed information about what to expect.
Get Organized. Timing is one of the biggest differences between a home-buying loan and a construction loan. Lenders require county approvals, permits, appraisals and an architect for plans before you can close the loan. Your builder can help keep the permit process moving throughout your build.
Be Patient. You do not want to get in a hurry to get the site developed as quickly as possible. Most banks require reserve money to prove you have financial health. If you have already spent that money on an excavator and digging a well, you may have already spent those funds.
Get Prequalified. As with any home purchase, whether it is a custom build or traditional home-buying process, you will want to meet with your lender and get prequalified. Your lender will be able to educate you on many different variables that can influence the approval and amount of your loan. These can include whether you already own the lot, is the property a gift, where is the property located, etc. Remember that just because you qualified for a traditional home-buying loan, it does not automatically qualify for a construction loan. There are different requirements for each.
Choose Your Builder Wisely. The loan process and building process are stressful. However, an experienced and reputable custom home builder, such as Craftmaster Homes LC, can help your process by consulting with you throughout your entire build, start to finish. We can assist in budgeting, planning, site development, building, targeted schedule, staying on schedule and locking in a budget in advance.
Basic Design. As a borrower, it is beneficial to have an initial conversation with a builder and be working on potential plans before you contact a lender. This gives your lender an idea of potential cost and a starting number for your custom home build loan. Before you completely finish out all your wish list items, meet with your lender to see what you qualify for. This gives you realistic expectations of your budget and payments will be and hopefully eases the pain of possibly not getting everything you want in your custom built home.
Budget. Once you know what you qualify for, stick to your budget. You may have to compromise on some features, but this also ensures you have a home that is not going to stretch you beyond your means. An experienced builder can provide you with a budget range for your total project. Then you can contact different lenders to see what loans and programs they offer that fit your needs.
Building a home can be a stressful time, but Craftmaster Custom Homes LC in New Braunfels is ready to help make your journey as easy and stress-free as possible! We can help with all your design choice needs within your current budget whether it be a new custom home or a remodel in your current home. Contact us today!