There are many aspects to consider when it comes to building your dream home. The financing aspect is the least exciting but is one of the most important early steps that you must take before you can progress to the fun stuff!
The majority of custom new homes are financed with a construction loan. Not all banks will write construction loans, and then not all construction loans are created equally. We’ve put together some info and some items to consider while you progress towards your dream home.
QUESTIONS TO TAKE INTO CONSIDERATION
Before you begin the loan process, you should review the following questions to clarify your financing:
- What is my credit score? Do I need to clean up any items before applying for my loan?
- What information will I need to get for the loan process? Real estate taxes paid, pay stubs, previous year’s tax returns.
- In terms of a mortgage, what can I afford? What am I comfortable with for a monthly payment?
- What will I use for my down payment? Land, investments, cash in hand, equity in a current home.
THE CONSTRUCTION LOAN PROCESS
If you are building a home working with a custom builder, a construction loan will come in handy. A construction loan is an interest-only loan that pays draws on construction work completed to the builder. The bank will send an inspector to verify the work completed at each stage.
Be prepared to draw 15 to 20 percent of the total loan amount for each stage of the building process from site preparation to the installation of appliances, and plan on about one draw per month during the building process with MK Homes.
Once the home is complete the mortgage converts to a traditional loan, with interest and principal payments. We always recommend ensuring that a construction loan only closes once, at the beginning of the loan (this avoids a second set of closing costs).
We try to make our building process simple:
- Meet with Matt and Kim Keith.
In our first meeting, we will discuss what your needs and wants are for your new home as well as what your priorities are for the design.
- Meet with your home loan expert.
We recommend you to establish yourself with your banker and mortgage broker if you plan on financing your new home. Get pre-approved so you can develop a price range that you are comfortable with before you start home shopping.
Your mortgage broker can discuss significant buying restrictions like down payment requirements, homeowners association fee (HOA) and taxes. We can then work with you to fit all of your home needs and as many pf your home wants as possible into your determined budget.
- Design agreement.
Once we have established your desired home style, your budget, your basic floor-plan, your specific needs and wants we enter into a design agreement. The outcomes of the design agreement are the unique home plans for your home along with the specifications (20-30 pages) of what is going into your home (finishes, selections, and allowances). We will also develop the site work allowance during this time, if applicable.
- Sign the purchase agreement and send them to the lender.
A purchase agreement is a legally binding contract agreeing to the contract price between the seller and buyer. Once we have agreed on the home plans and specifications we can sign everything and get it to the lender so they can finalize the loan. Once the loan is closed we can start construction!
The home construction process is estimated to take about seven to ten months with many phases. After the design and purchase agreement are taken care of, the remainder of the construction process begins:
- Excavation and foundation: Two to four weeks
- Framing and roofing: Four to eight weeks
- Mechanical rough-in (HVAC, electrical, plumbing): Four to eight weeks
- Insulation and drywall: Four weeks
- Paint and interior trim: Four to six weeks
- Flooring and cabinetry: Two to four weeks
- Final mechanicals: Four weeks
- Final punch out: Four weeks
This timeline can vary depending on each home’s unique design.
LAST THOUGHTS ON CONSTRUCTION LOANS
Construction loans are not offered by all lenders, so check with your bank to see if it is an option. We recommend using local community banks who are familiar with the area for the smoothest construction loan process.
Two banks we recommend for you that are established and have an easy to use construction loan program are as follows:
Let us build a home that fits you! Give us a call today: 724-206-9741
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