Lindahl Construction Group

Building a new custom home is an exciting endeavor.  If you have decided  to work with a new home builder to design your new Sarasota or Longboat Key residence, you will have many decisions to make – from choosing the perfect lot to choosing your home’s style and details.  

If you plan on obtaining financing for this transaction (as opposed to paying cash),  it is important to understand the differences between a home loan for a resale property, and one for a custom home build through a new home builder.

The following outlines the similarities and differences between the two types of loans. 

Obtaining a Loan for a Custom Home Build

• Generally, lenders consider financing a new custom home build as a more risky endeavor than a resale situation. This is because they are agreeing to finance the “idea” of a new home, versus a current physical structure.
  
  There are variables when building a new home, such as possible market volatility, changes in the builder’s status, or increases in material costs which could result in the home never being finished.
  
  
• As cautious as lenders are by nature, they are even more cautious when agreeing to lend money on a home which is yet to be constructed. Therefore, the lender is likely to require more equity from the buyer, usually in the form of a higher percentage down payment than in a resale.
  
  
• The total cost of building the home also needs to take into consideration more than just the cost of labor and materials. Permits, site plans, and land improvements (such as utilities and land grading) must also be figured into the total loan amount. 
  
  
• With a traditional loan, the buyer will need to provide proof of assets, employment, debt-to-income ratio and credit scores.
  
  With a new home build, these requirements are still in place, but the lender will likely also require copies of the land deed, the contract from your home builder, as well as their licensing and insurance documents. 
  
  
• The detailed home plan from your general contractor will help to establish the projected value of the home – both to establish loan down payment and total loan amount.
  
  The plan will detail floor plan, square footage, amenities, and materials, and then compare them to other homes in the area with similar attributes. 
  
  
• Your loan will “close” once all values and dollar amounts have been established and you have met their lending guidelines. You will need to sign all documents and provide the down payment amount. 
  
  
• New construction loans are paid out in increments, called “Draws”, over the course of the construction process. This covers the construction company for their costs as they build, and may require a site visit by an inspector to ensure that expected progress has been made. 
  
  
• Loans for the new home building process may be two-tiered, with the initial phase being interest only, and a permanent home loan kicking in once you receive a certificate of occupancy.
  
  Depending on your lender, you may have two loans and two sets of closing costs – or they may offer  loan which automatically converted once the home is completed. Be sure to shop different construction loans for the one which works best for you. 

At Lindahl Construction, we are happy to discuss your custom home build from start to finish, so that you understand all of the nuances and know what to expect at every stage.

We can provide necessary documentation to your lender, and give you any assistance you need to design build the home of your dreams. Take a look at some of our recent home builds. 

If you are considering a new home in the Sarasota or Longboat Key community, we look forward to being your builder!