The Basics of Financing Your Custom Home

Nutter Custom Construction would like to help you understand the basics of financing your custom home. Doing so requires some working knowledge of what are called construction loans. These are the ways you finance a home that is built from scratch.

Custom Home Financing Basics

What is a construction loan?

Contrasted with a traditional mortgage loan, a construction loan covers the financing necessary for the construction process, which usually lasts 12 to 18 months (or however long it takes to build the house). A mortgage loan only reflects the value of the property when you buy a pre-existing home. Not every bank offers these kinds of loans, and you typically need to be able to provide a 20-30% down payment. There are three types of construction loans:

  1. Construction-To-Permanent Loans
    • This is where your loan covers the construction of the home as well as a standard mortgage upon the completion of the project. It covers the full gamut of construction and home purchase costs.
  2. Standalone Construction Loans
    • This type of loan covers just the construction and must be paid upon completion of the project.
  3. Renovation Construction Loans
    • For pre-existing homes, you can also obtain loans that cover renovation costs. Like construction-to-permanent loans, these can be combined with a traditional mortgage as well.

What are the pros/cons associated with construction loans?

  • PROS: These loans are interest-only, the monthly payments are lower than traditional mortgages, terms are usually more flexible, and they tend to be a better option than home-equity lines or other private loans.
  • CONS: The interest rates are higher, you’ll face stiffer requirements, the down payments are higher, the bank may perceive them as riskier, and you usually need to secure a pre-approval for a traditional loan anyway to prove creditworthiness.

nuVery few home buyers are aware of this type of financing unless they have experience with new home construction. If you want to learn more about financing, would like to discover how to get started with your own custom construction project, or are in need of a dedicated concierge service, then Nutter Custom Construction is your go-to source. Contact us at 941-924-1868 to find out more. You can also email us and visit us on Facebook. We can’t wait to help you with all your construction, remodeling, and renovation needs.

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