From Bare Land To Dream Home – Chap 1
Find a lender for the money first
Land owners often choose to find a lender first. It’s an understandable choice, and might be the natural result of having used a bank loan to buy the land. Furthermore, they want to know how much money they’ve got to work with before they choose a design and builder. However, you must be careful, because financing new construction is entirely different than simply getting a mortgage.
If you’re building a new home, you’re going to have to get a construction loan in addition to the “normal” mortgage loan. Similarly, you need a specific type of lender to get a construction loan. Correspondingly to get a good deal and to minimize the headaches caused by a lender who isn’t used to doing construction loans.
What to look for in a construction lender
It’s always safe to find a lender, with a banker that is experienced with construction loans. Although this type of lending has its own quirks. Because of this you want a bank that understands it so that the process will run as smoothly and stress-free as possible. Additionally, don’t just walk into any mortgage company or bank and assume that they even know what to do.
You’re also better off with a banker that has a relationship with a mortgage lender. With a construction loan, the banker will give you money for construction, and then the mortgage lender will pay that off and work out a monthly payment for you. Additionally, if the two have a working relationship, that transfer can happen seamlessly.
Lastly, it’s always very helpful to know a trustworthy builder beforehand. Because it can impact what kind of experience you have, and whether you look back on it with joy or regret.
Approval of your construction loan can depend on your builder
Find a lender that deals in construction loans is in a tricky position. Because, if they loan you money for home construction, they’re also on the hook if something goes wrong.
For example, let’s say that you choose a cost-plus builder and the cost of building your home goes way over-budget. Not only do they have to either loan you the money to finish the home or try to figure out what to do with an unfinished house. However, they don’t want your house, and they also don’t want a loan on their books that they can’t convert into a permanent mortgage.
Naturally, they’re going to be a bit picky about whom they loan to. Furthermore, a banker isn’t going to like the idea of lending you money if you choose a builder that has a reputation for going over budget.
On the other hand, if you’re working with a reputable builder, your odds of getting approved go way up. In fact, a great way to evaluate a builder is by checking out his or her banking relationships, and his or her reputation among those in the banking business.