When looking for a new home, you have a number of options, including purchasing existing construction or building a new home to your specifications. If you choose to build, you will likely need a loan to finance the building. A traditional mortgage will not apply as the home is not completed and available to occupy. You'll have to look at different types of financing. This is where new construction loans come into play. These help with home building costs.
A new home construction loan is a short-term loan that will allow you to build the home of your dreams. New construction loans differ from traditional mortgages in a number of areas, including the terms - they are shorter term and usually carry a higher interest rate, and are often a variable rate as opposed to fixed. Many of these loans also will require that you make interest-only payments during the construction, with the principle balance due at completion of building.
In addition, the lender will usually require an explanation of where the loaned money is going. This is because unless you own the land on which the property is being built, there is no collateral to back up the loan in the event that you default.
There are a number of ways you can obtain a new construction loan. The three most common are:
- Get a loan online. Using the Internet, you can visit the site of your lender of choice and begin the application process. Some sites will then have a representative contact you by phone or by mail to complete the process. Even though you start online, you may also be required to meet with a loan specialist to sign the final paperwork or present the plan for your construction.
- Visit a local lender. Most major banks and credit unions will offer new construction loans through their officers. Go to your local Bank of America, Wells Fargo or bank of choice and ask to discuss their loan options with an agent. He or she will work with you through the process and determine (within the bank's guidelines) whether you qualify.
- Contact your lender by phone. If you prefer, you can also begin the loan process by phone. Call your local lender and ask to speak with an agent regarding what they require and whether you can apply over the phone.
Now you know how to obtain construction loans for a new home. Remember that the new construction loan is not designed to replace a mortgage on your new property. When you receive your certificate of occupancy, you will want to contact the lender to discuss the steps needed to convert the loan to a traditional mortgage.