Buying a new construction home definitely has its benefits. You’ll be able to enjoy brand-new, clean living quarters, better energy efficiency, and a more functional floor plan. But what about financing? Buyers spend about $155,310 – $416,250 to build a new home. Few people have the cash to finance such a large purchase outright. New home construction loans make these endeavors possible, but what does the process involve? Below, we’ve provided answers to some of the top FAQs.
Loans for New Build Homes: Frequently Asked Questions
New construction homes are considered by many to be a good investment because of their higher resale value. Buyers tend to spend less money on maintenance and repairs and newer homes hold their value for longer.
If you’re considering building a home, chances are you’ll need a new home construction loan. Below, we’ve provided answers to some of the most commonly asked questions about these types of loans.
Q: What is a construction loan?
A: A construction loan is a loan used to cover the costs of constructing a building and, in this context, a home. There are many types of construction loans including construction-only loans, construction-to-permanent loans, owner-builder loans, and end loans.
Q: How is a new home construction loan different from a renovation loan?
A: These loans are different from renovation loans because they’re used to fund the expenses involved with erecting a new building. Renovation loans, such as FHA 203(k) loans, on the other hand, are used to finance the costs involved with remodeling an existing home.
Q: What are the qualification requirements?
A: These loans are generally more difficult to qualify for than other financing options. This is because there’s greater risk involved for the lender. Applicants will need to have a higher credit score (at least 620 or higher in most cases) and be able to put a considerable amount of money towards their down payment. Down payment amounts usually range from about 20-25%.
Q: What exactly does a construction loan cover?
A: Generally speaking, construction loans cover the cost of the land, contracting labor, building materials and supplies, and permits. Sometimes, construction loans will also include contingency reserves to cover unexpected costs. It’s important to get a detailed explanation from your lender about exactly what costs can be covered with your particular loan.
Q: How do I apply?
A: To begin the application process, simply fill out our online form or contact our office directly. We’ll go over all the documents and information you need to get started.
Still Have Questions?
Are you still looking for answers to your questions about new home construction loans? Give us a call! Our expert staff will be more than happy to assist you and discuss your concerns in detail.