Financing in 75062>Question Details

Sam, Home Buyer in 75062

What is the process of financing to build a house?

Asked by Sam, 75062 Sat Aug 28, 2010

Is it best to get separate loans to purchase the lot, and pay it down until you are ready to build (6-8 months) or get one loan for everything? We qualify, and have an area, builder, etc in mind... but aren't sure where to start.

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Ronda Allen’s answer
If you are wise, your first step is to ask a local REALTOR for help. If you have an area or builder in mind, that's great. It saves a little of the legwork, but not much. You need someone who is representing only you - and the builders in our area will typically cover our fee, so that service is not an expense to you. There are lots of places that a build job can go awry. Not to scare you off from building - but I've seen on-site builders melt-down from overwork and quit mid-job, sales reps for the builders get cases of amnesia regarding conversations that took place but were not documented, builders go bankrupt 12 weeks before the completion of a new home, loan programs dry up, and buyers who split up and decide to divorce mid-construction. Oh, and these are scenarios I've seen and had to overcome personally for clients. I would not recommend that anyone just pick a builder, sign their contract, and hand over their money without the representation of a good, local agent.
0 votes Thank Flag Link Wed Sep 8, 2010
There are several ways to go about it. Your mortgage professional is the key to your options. There are loans where the lot and costs to build are in a bundle. Hopefully your mortgage pro can explain your different options and you can decide which one works best for you. If you wish to compare costs I work with a custom builder who can provide you a comparison, 972-816-9442 Mike
0 votes Thank Flag Link Wed Sep 8, 2010
Start with your overall budget and make sure that if you were to buy a house right now at that price that you could afford the payments. Then add about 20% to your figures to be sure.

Next you need to check out the two main options for construction loans:
bridge followed by normal financing
single-close financing.

The bridge or construction loan is made for well-qualified borrowers to supply funds in stages for lot, foundation, materials, or other progress payments up to the point the house is ready to occupy. This process typically runs 6 months or longer. The rates on these loans is not pretty, but the loan is only for interim financing. On completion a second loan is closed which pays off the contruction loan and is at the typical market rates and terms.

Some lenders offer a loan with a single closing, rather than the two applications, two sets of paperwork and two closings in the traditional construction loan scenario. The terms for the bridge portion of the loan are still higher than the occupancy portion, but closing costs are lower and the loan, more importantly, is set in concrete so to speak. Even though closing out the construction phase may be months away, you'll know the terms upfront.

If you don't know whom to ask, contact me for more details.
0 votes Thank Flag Link Mon Aug 30, 2010
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