You have a dream home, but does it exist outside of your imagination? The housing market boasts a wide variety of houses, but do any of them match the one you’ve created in your head? Probably not. You only need two things two move your home from your dreams and into your reality, an architect to design it and money. Reading this article won’t give you any tips for designing your home but does discuss a financing solution.
Most homeowners purchase existing houses through a mortgage. How do you buy a house that hasn’t been built yet? New construction loans are the answer. Much like a traditional mortgage, new construction loans provide you with the money to buy your next home; only it hasn’t been built yet. With that being the case, there are a lot of risks involved for lenders.
Before you take out a new construction loan, you’ll be required to show plans for your house and provide a building schedule. Once accepted, you’ll receive funding for your home in small portions. Typically, loan funds are only dispersed as various phases of your home building project are completed. More likely than not, your house will go from a dream to being move-in ready within a year. Consequently, most new construction loans only last one year.
As you know, building a house isn’t cheap, and you likely need more than a year to come up with the money for such a large project. Thankfully, you don’t have to pay back your new construction loan before the one year term ends. Instead, you’ll choose one of two options to close your loan, which is decided when it’s first set up.
The first option that you’re given is a one-time close loan. With a one-time close loan, you make interest-only payments during the construction of your home. Once your dream house is built, your loan converts to a traditional mortgage, and you begin making principal payments in addition to interest payments.
Your second closing option is a two-time close. Through the two-time close option, you qualify for two separate loans, the construction loan, and a traditional mortgage. Following competition of your home, the mortgage is used to refinance the construction loan, effectively paying it off, while allowing flexibility with mortgage rates.
With a new construction loan, you don’t need to spend any more time fantasizing about your dream home. Now you can take your dream home and build it into reality.
