Anyone who has purchased a resale home understands the process of obtaining a mortgage. But if you are looking to build a new Sarasota custom home, how can you go about finding new home construction financing?
After all, the situations are different. The down payment required on a new build may be more significant than the required mortgage down payment on a resale. You may need to pay installments as the build progresses. For those used to buying with conventional financing, there may be some question as to how the two situations are alike, and how they differ.
New Home Construction Financing Availability
In many ways, finding new home construction financing is similar to buying a resale home. You will want to make sure that your credit reports accurate, up-to-date and correct; that you have the needed cash on hand; and that you are financially able to make this large of a purchase. You should understand your financing needs and options before you even begin the process of shopping for a custom builder.
Will my builder offer financing? Many builders offer financing, usually through affiliates or partners. Because they work with these lending institutions on multiple deals and may have some special rates or programs, be sure to ask each builder if they can offer any financing options or have recommendations for your situation.
In addition to possible builder financing, you may have access to unique tools that apply only to new homes, such as new home construction financing. These loans can be utilized to fund the purchase and construction of a new home. While new home loans can be obtained whether or not you will be selling your current home, bridge loans are another option which will provide funding before you sell and have those proceeds.
Any lender will require documentation of income, employment (or two years of IRS filings if you are self-employed) bank accounts, 401(K) funds and other assets. While compiling this information, also create a record of your monthly household expenses, which will also be required in order to determine your viability for a loan.
If you are working with a Sarasota or Longboat Key custom builder or general contractor, you will likely be looking to obtain a construction loan. Most new home construction financing offers short-term funds intended to get you through the building phase of your project, which is typically six to twelve months. The loans usually then convert into a permanent long-term vehicle of 15 or 30 years.
New home construction loans are a specialized niche in the lending industry, and therefore are not as available as standard mortgages. A good option to find the right loan for your situation may be to look at community banks familiar with the local Sarasota market, especially savings banks and thrift institutions. Some mortgage brokers will offer programs that may also be worthy of checking into.
New Home Construction Financing – What to Expect
Most banks offering construction financing require substantial down payments upfront — typically 20 percent to 25 percent at a minimum. However, some lenders have programs that combine FHA-insured permanent loans with short-term construction loans.The short-term, construction-period portion of the financing package will carry a “prime-plus” interest rate; while the long-term portion of the package generally will be near the going rate for regular mortgages.
Construction loans work on an installment schedule of drawdowns of funds. At specific points in the process, the bank will send an inspector to the construction site to report on progress. Once confirming that all building codes and regulations are being met,, they will release another installment of funds to the general contractor or new home builder. For instance, a schedule might provide for an initial payment of 15 percent for site preparation and foundation; another 20 percent for the framing; and additional installments for work on plumbing, electrical and interior carpentry.
If you are looking to build a home in Sarasota and are wondering about new home construction financing, start by calling Lindahl Construction. We are here to help, and have the local expertise and connections you will need.