Finding the Right Bank to Finance Your Custom Home Build
Shopping for houses is not easy. At times, it can be fun, but if you know exactly what you want, a custom home build is probably your best bet. The thing is, financing a new home is fundamentally different from getting a mortgage on a previously owned home. It helps to know a few tips for finding the right bank to finance your custom home build.
Look for a New-Construction Loan
Since you’re building a new house instead of buying one that is already completed, there’s a unique option when you shop for lenders. New-construction loans are designed for this, and they aren’t available from all banks. The idea behind this type of loan is that it makes funds available right away in order to facilitate the construction process. When the developer needs money to start the next phase of construction, the bank is already prepared to handle it.
Once the construction is complete, the loan transitions into a traditional mortgage and you pay on it like a standard loan. This is really the best of both worlds. You’re ultimately getting a mortgage you understand, but the loan is handled by a bank that understands new-home construction and can prevent financial delays in the process.
Consider Builder Financing
It’s fairly common for builders to assist you in finding a lender. Some run their own financial subsidiaries while others have business partners in the lending game. When these contacts exist, it creates a unique opportunity. Builder financing sometimes enables you to get a better rate or deal on the loan, largely because they have good rapport with the builder that offsets some of the risk. Also, builder financing has the same benefits as a new-construction loan. The lender understands the business, and their partnership with the developer facilitates money management to prevent hang-ups.
Double Check the Market
Even though specialized financing can give you competitive options, you still have to shop around for the best possible mortgage. The only way to do that successfully is to study the market. You need to have a clear idea of your new home’s value and the quality of the neighborhood.
Misunderstanding these values is the easiest way to go underwater on a mortgage. Additionally, you have to investigate the lending market. What do interest rates typically look like for someone with your credit score? When you have the right expectations, you can try to negotiate the best possible rates and get the most out of your mortgage.
All of the tips in the world won’t replace the most important element in mortgage shopping: being patience. Building your dream home is exciting, but rushing into things is not a good idea. You’re already doing a custom build. You’ll get what you want. You just need to take the time to make sure it doesn’t cost you more than it should.