What is the process to buying a home in a new construction community?
November 28, 2008
I want to build a new construction home. The loans I have researched want interest-only payments until the house is complete. That is impossible considering that would be as much as a house payment and I already have a hefty one of those! I will make a nice profit off my house once it’s sold but I can’t do that until my new home is built. And I can’t build my new house until…….you see my problem?! They also require $5K down. Can that be included in the one loan I get so I don’t have to take out two loans? I have to be overlooking something. I can’t imagine it’s this difficult for everyone who already owns a home and wants to build. Any tips or knowledge would be greatly appreciated!!
Have you talked to the construction company? They might carry the construction loan if you have put down a reasonably down payment. But sounds like you’d have to come up with the $5000 for the down payment without borrowing it - that’s pretty standard.
Yes, you can get a Construction loan to add in the cost of the loan (interest accrued during construction). Once construction is complete you convert that loan to an ‘end’ loan. No worries.
Who is requiring the 5K? The builder? or the lender?
Do you own the land the home is being built on or looking to finance that as well? That will make a small difference in how they calculate the values for loan to value etc.
Most cases will require a strong credit profile and some assets (for reserves) Best guide have 4 months salary in savings or 6 months of mortgage payments in savings - the greater of the two will qualify you for the best rates and programs for construction lending.
Not all banks do constructions loans, call around or look online. You can e-mail me as well.
Hope this helps,
When you get the construction loan, you will make your interest payments out of the construction loan. Your interest will only be for the amount you have used. Most banks will give you 4-7 draws, in which they deposit money into your account, so will only pay interest on what you have borrowed. So your first interest payment should be a few hundred dollars and increase each month as you pull more money from the bank. I just finished building my second house the final constuction loan was about $180,000 and I paid a total of about 5k through 6 months. The 5k down is going to have to be out of your pocket, a lot of banks will require this if you already have another mortgage, a lot of times they will make you put it in a CD with the bank. This is from my experience but each bank is different.