Most people can’t fund the construction of a new home using cash, but that doesn’t mean it’s impossible to build your own custom home. Much like getting a mortgage to purchase an existing home, you can get financing to pay for the costs of new construction. Also like a typical mortgage, there are several different financing options available to you. The one that makes the most sense for you will depend on factors such as:
- Cash available for a down payment
- Ability to make monthly payments
- Credit score and history
- Household income
- Existing debt and assets
If you’ve never built a new home or gone through the financing process, it can feel intimidating. There is always a lot of paperwork, and the many options can be confusing if you don’t understand all the details. However, you don’t have to go through it all alone.
In addition to building houses, Adair Homes and our sister company Alliance Financial Services are also here to help you navigate the financing process. If you’re considering building a new home, explore these financing options to determine which approach is right for you.
Construction Loan
The homebuilding process starts with a new construction loan that can be secured from a local lender or the builder. Not all banks offer this type of loan because it has higher risk, so you might have to shop around if you decide to go this route. When you get new construction financing from a bank, they must also approve the builder. On the plus side, this helps ensure that your builder has been vetted, but on the other hand, it adds layers to the process.
Getting financing directly through the builder can help you save time and money. Builder financing often has competitive rates, and because they have more experience with these types of loans, the approval process is frequently faster.
Permanent Financing
After construction is complete, you will need permanent financing, which looks more like a traditional mortgage. This process is essentially refinancing the home, which requires securing the loan and going through the closing process again. The permanent financing options that might be available to you include conventional, FHA, VA, and USDA loans. Depending on a variety of factors, such as your budget and income, you might select a 15-year or 30-year mortgage with fixed or variable interest rates. You can also choose between an interest-only or a debt consolidation loan.
Some builders offer financing packages that include both the construction loan and the mortgage, so you can streamline the loan process.
Single-Close USDA Loans
Single-close USDA loans are a new option offered through Adair Homes in-house lender, Alliance Financial Services. Designed to make new home construction more accessible to people who live in rural areas, these loans are only available to people who live outside of major metropolitan areas and meet the income level requirements. USDA loans make it possible for people with lower credit scores, lower income levels, and less cash available to build new homes. In many cases, you can get this type of loan with no down payment, so building your own home is possible even if you do not have a lot of savings.
Single-close USDA loans also streamline the process by bundling the financing together, which means that once construction is complete, you don’t have to go through the financing process again. The construction loan automatically converts to a mortgage, and you save money on closing costs.
If you still have questions about financing a new custom home, get in touch with Adair Homes to discuss the options available to you. Our Home Ownership Counselors will work with you to determine what type of financing is right for you, what type of home you can build for your budget, and how to build equity during the building process. Contact us today to get started.
