Once you have gone through the process of selecting a custom builder and designing your dream home, you move on to the financing portion. How do you go about selecting a lender? What financing options are available? Are there any risk? Just when you thought all the decisions were over now comes one of the single most important parts of the process – selecting a lender and financing option. We have witnessed many headaches and frustrations from our clients. This blog will briefly highlight the importance of lender selection.
It is critical in the building process that you work with a lender who knows the construction business. Why you may ask? Well it is much simpler to finance a preowned home or a production built home. Bottom line – construction loans are highly specialized. When you make the decision to build a custom home, you need to surround yourself with the right people to make sure the process goes smoothly. A knowledgeable lender will ensure a timely closing and could save you money!
There are few options when it comes new construction loans. The first and most selected option is a one -time close. With a one-time close, you close once for the construction and the permanent loan. During the construction period the loan is interest only until the green tag or certificate of occupancy is issued, then it converts into a permeant loan of 10, 15, 20, or 30 years. One-time close is often the most selected due to minimal closing costs and how it converts to a permanent. Many mortgage brokers, banks, and loan officers will tell you that they know how to do a one-time close for construction loan, but they don’t always.
Another financing option is a construction or bridge loan. When selecting this method of financing, you will have two separate loans; construction and permanent financing. A bridge loan provides the option of breaking the loan up into a first and second or reducing down payments. For example, if you are waiting for a home to sell, or a large sum of money to be cashed out. Bridge loans give you the flexibility to make changes once construction is finished versus a one-time close your locked in for the whole term.
A knowledgeable lender will take the steps necessary to make sure you close on time. The lender will provide you with the pros and cons for various financing options and provide an estimate of closing costs. While someone with less experience may promise the world, and fall short on expectation. Often times the right lender will save you time and money in the long run. We work with several experienced lenders. If you are looking for a recommendation, give us a call and we will be happy to introduce you to the right one.