How to start a New Construction Loan
Financing your new custom built home is a two-step process. First, you obtain a temporary new construction loan to get the project started. After the construction is complete, you modify your initial loan at the best terms available.
Taking the first step
- Meet with one of our Lending Hand Mortgage officers to get PreQualified for the amount you can afford.
- Make a wish list, including features and locations.
- Go and see new home communities and builders in your selected price range. Use an experienced real estate agent to guide you.
How to Get a Loan to Build a House
You will need strong credit and a minimum down payment of 10% at closing. The exact down payment requirement is determined by the cost of the land and the planned construction. If you already own the land, you can use it as equity for your construction loan. Lending Hand Mortgage will check the credit and credentials of your builder as well.
Consider the following when you apply for a Construction Loan
- Buying Within a Development
- Buying a Custom-Built Home
- Strong Credit Requirements
Not all New Construction Loans are created equal. Lending Hand Mortgage will present you the best loan which fits your needs.
Closing a Construction Loan
There are two types of construction loans, they may go by different names depending on the lenders offering them. To make it easy we’ll call them a “Single Close” and a “Two Step” loan.
Single Close Construction Loan
The single close construction loan is a program that finances the purchase of the lot and construction costs of your home. It serves as the long-term financing as well.
Two-Step Construction Loan Closing
A “Two Step” loan differs from a “Single Close” loan in that the home buyer will close on one loan that is solely used to finance the purchase of the lot and the construction of the home. Once the home is fully completed, the homeowner refinances the construction loan with a permanent conventional loan of their choosing.
The two loans do have some similarities:
- Most lenders will require at least a 10% down payment (very few will go less than 10% down and will require very compelling compensating factors to do so)
- The equity position will be based on the LESSER of the cost of acquisition or finished appraised value
- The borrower typically makes interest-only payments only on the portion of funds used during construction
- The borrower/builder will take draws as needed to cover materials and labor completed
- The borrower AND builder will need to be fully approved by the construction lender
Why a Lending Hand Mortgage professional?
Lending Hand Mortgage (NMLS #373538) prides itself on providing unparalleled customer service and earning satisfied clients. Our purpose? Satisfy the mortgage needs of our customers and exceed their expectations.
We work with underwriters and loan processors from the application date until closing to gather necessary documentation and guide the file through the approval process.
Our mortgage loan originator is your main point of contact throughout the entire home loan process.
First and foremost, our loan officers are committed to a height standard of honesty and integrity.