You’ve toured the homes. You’ve scrolled through the listings. But everything seems to be missing something.
The right location. Enough space. A home office. More privacy. The kitchen you want. Or simply a floor plan that works for the way you actually live.
At some point, you may start wondering: What if I built instead?
Building a home isn’t right for everyone. But if you aren’t finding what you want in the existing housing market, new construction may be an option worth exploring.
And you don’t necessarily need to have every detail figured out before you start looking at the financing.
What Is a Construction Loan?
Financing a home that’s being built can work differently
from financing an existing home.
With a traditional purchase mortgage, loan funds are
generally provided at closing to complete the home purchase.
With construction financing, funds are typically provided in
stages, or “draws,” throughout the building process as work is completed.
That makes the lender an important part of the process well
before move-in day.
Start With Your Budget, Not Your Blueprints
You don’t necessarily need a builder, completed blueprints and every finish selected before talking to a lender.
In fact, exploring financing early can help you make more informed decisions about the rest of the project.
PrimeLending can begin with an assessment of your goals, budget and financial situation. From there, we can help you understand what you may be able to afford and which construction financing options could fit.
Having that information early can help establish a more realistic price range before you get too far into land, builder or design decisions.
One-Time Close vs. Two-Time Close Construction Loans
Depending on your situation, there may be different ways to structure construction financing.
One-Time Close Construction Loan
A one-time close construction loan combines the construction and permanent financing process into a single closing.*
Rather than closing once on construction financing and again on permanent financing after the home is complete, the loan converts according to the terms of the program.
Having one closing can simplify parts of the financing process and may reduce some of the costs associated with closing twice.
Two-Time Close Construction Loan
With a two-time close structure, construction financing is used during the building phase. Once construction is complete, you close again on permanent mortgage financing.
This approach involves two separate loan transactions but may provide different financing options once the home is completed.
Which structure makes sense depends on your goals, financial situation and available loan programs.
Do I Need to Own Land Before Getting a Construction Loan?
Not necessarily.
You may already own a lot, have one in mind or still be deciding where you want to build.
Depending on the loan program and your circumstances, the land purchase and construction costs may be considered as part of the overall financing strategy.
If you already own land, the value you’ve built in the property may also factor into your financing options.
The key is to bring that information into the conversation early so your lender can help you understand what’s possible.
Do I Need a Builder Before I Talk to a Lender?
You don’t necessarily need to have selected your builder before your first financing conversation.
Starting with financing can help you establish a budget before you begin making commitments.
As the process moves forward, however, your builder and project will need to meet applicable loan and program requirements.
Talking with a lender early can help you understand those requirements before you get too far down the road with a particular project.
Do I Have to Sell My Current Home Before I Build?
Not always.
Depending on your finances and financing strategy, there may be situations where you can begin construction before selling your current home.
Because every situation is different, this is another reason to discuss financing early. Understanding your current mortgage, available assets, equity and overall budget can help determine what options may be available.
You Don’t Need to Have Everything Figured Out
Maybe you already own land.
Maybe you’ve found the perfect lot but haven’t chosen a builder.
Or maybe building is simply a “someday” idea because nothing on the market feels quite right.
You can start exploring the numbers before you have all the answers.
The earlier you understand your potential budget and financing options, the better prepared you can be to decide whether building is realistic—and what the path forward could look like.
Thinking About Building? Start With the Financing.
You don’t need blueprints, a builder and every detail
figured out before you explore your options.
A PrimeLending loan officer can help you understand your
potential budget, construction financing options and the steps involved so you
can make informed decisions before you get too far into the building process.
*Restrictions apply. Contact your PrimeLending loan officer for more details. Subject to credit approval.
