Wednesday September 3, 2014 by The Mettle Group
Our friend and colleague Emily Osguthorpe Moore talks about construction loans in her latest newsletter. Since we get lots of questions about the financing to build a new home we thought we’d share what she wrote. Emily is a great Realtor and is expert at guiding her clients through the construction process. If you are contemplating building your dream home, please watch the short video below and call with any questions, or click the chat link above and we’re happy to help.
Making the decision to build a new home can be daunting. Many clients don’t know where to start and are weary of making a mistake. Don’t let this scare you, if you simply choose to work with the right professionals, you can leverage their experience and virtually assure yourself of a positive outcome.
One of the first things you should consider is how you are going to pay for the home. If you are going to finance, then you will need a construction loan. There are two common types of construction loans, they are the one time close and the two time close.
Our one time close construction loan, allows you to purchase your lot, build the home and then it automatically converts to your repayment term of 15, 20 or 30 years. There are two distinct advantages with a one time close:
1. You only have to close once, which means you are not duplicating closing costs, such as processing, underwriting, appraisal and title.
2. Your interest rate is locked and fixed for the entire term of the loan before you close on the purchase of your lot. This reduces the risk of rates moving up while during construction on your home.
3. The loan allows you to lock a fixed 30, 20 or 15 year fixed term (Click this link for a total cost analysis comparison of all three loans.)
The downside to the one time close construction loan, is that it requires 20% down payment. We can however do a two time close construction loan with as little as 5% down payment (with purchase price of $430k or less) and as little as 10% down with $740k purchase price or less. Here’s a short video regarding our two time close construction loan:
The takeaway here is that we have solutions for construction financing with as little as 5% down and I would be happy to discuss your personal situation in greater detail, then make some suggestions on which option is best for you.
Got questions? Please call or click the chat link above and we’re happy to help.