Affording the cost of custom home building can be a challenge — especially if it’s your first time exploring the custom home building process. There are a number of factors that prospective clients need to consider, including different loan types and ways in which you can maximize your chance of approval.
If you’re looking to learn how to finance the cost of custom home building in Georgia or South Carolina, look no further than the team at Lee Builders to provide the information you need. Our custom home builders are happy to answer any questions you may have about financing your build!
3 Steps to Finance the Cost of Custom Home Building
There are a number of notable differences between financing a custom home and getting a mortgage on an existing home. Chief among these differences are the steps required for affording the cost of custom home building. There are three steps you must take in order to begin your custom home build: land financing, construction financing, and after construction (permanent) financing.
The first step to your custom home build is finding land. To do this, you’ll need to secure a land loan, which is a surprisingly simple process that can take as little as 30 days to complete. You’ll close your loan at a title company just like you would if you were purchasing a home.
Once you’ve secured the land, the next step is to get approved for a construction loan. Compared to the land loan application and approval process, this step is a lot more complex and can take more time to complete. During the construction financing phase, you’ll likely need to submit to a pre-construction appraisal from your bank. This will require you to send your lender the building plans, specifications, contract, and budget in order to schedule the appraisal. It’s important that your custom builder provides as much information as possible to the appraiser, including everything from color renderings to a detailed budget and project timeline.
Many banks will allow you to count the down payment made on your land purchase toward the down payment required for your construction loan. For instance, if your construction loan requires a $100,000 down payment and you already put $40,000 down on the land, you’ll only need to satisfy the remaining $60,000 balance for the down payment on your construction loan.
In some cases, Lee Builders is able to assist with the construction financing. If you own your property, you will be required to deed your lot/land to us and provide a minimum deposit of $25,000.
After Construction Financing
Once construction has been completed, you’ll need to transfer your construction loan into a permanent loan. If we finance the construction, an attorney will be needed to transfer the home. Options for this might include:
- Refinancing: Your bank will compile a new loan application, order a new appraisal, and prepare a traditional mortgage loan on your custom home. These are typically available in 10-, 15-, 20-, and 30-year fixed interest programs, or 3/1, 5/1, 7/1, and 10/1 adjustable-rate mortgages.
- One-Time Close Loan: Through this option, only one appraisal is required and terms are typically predefined under the construction loan (usually a 12-month period), which may be interest only. This loan will automatically convert into a permanent loan in the 13th month.
3 Tips for Financing Your Custom Home
In addition to understanding how to finance the cost of custom home building, it’s important for clients to know how they can improve their likelihood of getting approved. Below are five tips that can help you improve your chances of getting loan approval for your custom home build:
- Find the Right Builder: Having the right custom builder by your side can mean the difference between loan approval and denial — especially when it comes time to get a construction loan. Builders should be thorough in their design planning process, and must be able to provide extensive documentation to your bank so they can make an informed lending decision.
- Collect Necessary Documents: Before you apply for a loan, you’ll need to ensure you have the necessary paperwork in order. Be sure that you have pay stubs for the past 30 days, tax returns for the past two years, a copy of the past month’s bank statement, proof of secondary income, construction contract and blueprints, land deed, proof of deposit, builder’s license and contact information, building cost spreadsheet, and down payment information as this will all need to be submitted to your lender.
- Avoid Taking on New Debt: When planning your custom home build, refrain from opening any major new credit accounts, such as purchasing a new car or opening a new credit card. Lenders base loan approval on the credit report they receive during the application process, so adding more debt will decrease your rating (and your chances of getting approved).
By taking the necessary steps to prepare for your loan application, you can improve your chances of being able to afford the cost of custom home building. If you’re unsure about what steps to take in the custom home financing process, don’t hesitate to reach out to the knowledgeable custom home builders at Lee Builders for additional assistance!
Build Your Custom Home with Lee Builders!
Whether you’ve already purchased land or are just getting started with planning your custom build, Lee Builders has the team you need to successfully navigate each aspect of the custom home building process. Find out how we can help you afford the cost of custom home building with our available financing solutions by contacting our team today!