Financing Your Custom Home Build

Building a custom home that brings your vision to life is a dream come true for many; but if there is one aspect of the process that wakes you up quickly — and often with a mind full of worry and anxiety — it is financing your custom home. It can be stressful, but when you take it one step at a time, it is also manageable. How do you get started?

Custom Home Financing Tips

1. Get Your Credit in Order

Before you start the financing process in earnest, take a look at your credit. Are your reports up-to-date and accurate? Do you have any outstanding debts that you can clear up? Lenders want to know that you’re a good risk.

Consider your budget — and commit it to paper, if you have not done so already. What do you have as far as income and expenses? This will help you determine how much you can reasonably expect to be offered in terms of a mortgage. A good mortgage calculator with current rates like this one from Centier Bank, or this home affordability calculator from NerdWallet can be useful guides.

You also need to figure out how much you can use as a down payment. The more you put down initially, the more favorable your mortgage terms and monthly rates will be.

Be aware that construction loans for new builds typically have more stringent requirements, and you’ll need to put down 20 – 25%. If you already own the land on which you are going to build, you may use that as equity. And, if you don’t but can purchase the land with cash, do that. Banks tend to charge higher interest rates on land purchases because of the potential for a lower resale value.

2. Gather Key Documents

When you approach a lender, they will need to see proof of your income, employment, tax records (generally two years), bank accounts, retirement accounts, and other assets. For account statements, lenders often request documentation from the past 3 to 6 months. Gather and assemble these documents into a folder (paper and digital) for ready access.

3. Find the Right Custom Home Builder

Isn’t finding a custom builder before you get financing putting the cart before the horse, so to speak? No! There are a few reasons why it matters so much: first, many lenders require you to have a builder lined up who meets their specific requirements. If you don’t have a realistic game plan in place, they may very likely withhold funding.

Another critical reason is that your custom home building process should begin with a conversation. What do you want and need as a homeowner? You can begin budgeting and clarifying financial details so that you can properly – and confidently – plan your new home.

The right partner will be able to reduce the stresses involved in an average custom build; a close working relationship ensures that the process is as streamlined and convenient as possible and that communication is clear and ongoing.

When you want a home that’s built for life, finding the right builder is the foundation!

4. Comparison shop

Lenders often offer two-part new home construction loans. The first part funds the building stage (term is typically 6 to 12 months); it then converts into a long-term loan (15 or 30 years).

Shop around at local banks and financial institutions and have sit-downs with potential lenders. They’ll present your options based on your budget, needs, credit, and down payment amount. When choosing a lender, don’t just look at interest rates — though these are important. Also factor in fees and closing costs, as well as lender compensation.

5. Ask the Right Questions

When you’re meeting with potential lenders, ask some key questions:

● How much should I use for a down payment?
● What will my monthly payment schedule look like?
● Do you offer two-step loans (construction to permanent financing)?
● Can you explain the fees and costs involved?

A good lender will take the time to explain to your satisfaction. If any aspect is unclear, ask for clarification. If you feel like you’re getting the runaround, look elsewhere.

At G&G Custom Homes, we want the process of building your dream home to be as streamlined and stress-free as possible. We work closely with you to navigate each step, including financing. Whether you come with your own loan or need us to put you in contact with one of the lenders we have worked successfully with in the past, our team is committed to putting your mind at ease, contact us for a free consultation to get started building your custom forever home.