If you are looking to move into a new home, you might be feeling frustrated with the current state of the housing market. After all, Americans are currently on a record homebuying spree, pushing up prices to new heights and draining entire states of viable inventory. If you would rather not overpay for a disappointing house, you might want to build a home instead.
Not only can the price to build a new home be substantially lower than buying an existing property but doing so also gives you the chance to create the perfect house for you, without compromise. However, unless you are flush with cash right now, you will need to know the ins and outs of financing a new home build. Here are the crucial things to keep in mind.
1. Financing a New Home Build with a Construction Loan
If you are looking to design a home that is all your own, you will probably need to take out a construction loan from a bank or mortgage lender. However, this is easier said than done. Construction loans are complex and have much more stringent requirements since self-builds are considered by banks to be much risker than “normal” mortgages.
You will also only receive the money for your building project as you need it, with the bank usually giving out payments to cover each individual step of the process.
2. The Builder You Choose is Incredibly Important
The building company you choose when building a new home makes all of the difference. The right partner will drive down costs and provide your lender with the expertise to assure them that the project is low-risk.
Always choose a local building company with a good reputation and an extensive portfolio. For example, those living in Charlotte, NC should consider a top-tier company like Mills Eloge Homes, rather than an unknown builder.
3. Be Prepared to Make a Massive Downpayment
As mentioned, banks consider self-builds to be higher risk. That’s why learning how to design a home also entails shelling out much larger down payments. For a standard construction loan, be prepared to make a downpayment of at least 20%. This is non-negotiable. However, a larger downpayment will at least mean that the amount of debt you take on will be lower.
4. Prepare for Paperwork. Lots of Paperwork
Building a new home on your own means that you should be prepared to fill in ungodly amounts of paperwork. Your lender will need absolutely perfect documentation of every step of the building process, which means a lot of invoices and receipts.
You’ll also need to make a very lengthy application to receive your financing, which could entail you having to provide decades of financial records. It might be cumbersome, but the results are nearly always worth it in the end.
Design Your Dream Home
Understanding how financing a new home build works will bring you one step closer to owning your dream home for yourself and your family. For expert tips on how to design a home that is perfect for you and your loved ones, we have got you covered. Make sure to consult our insider design tips for the actionable advice you can really use.