If you’re building a home, you have probably already considered your budget, your wants and needs, associated costs, what architect and contractor you’ll choose, and your favorite design trends- what’s next? Financing.
Here is what you should know about financing for your future home.
Did you know a construction loan is different from a home loan?
- Construction-Loan: Construction loans are short term and they usually span the duration of the construction. Because of additional risk, construction loans have a high interest rate. You will also be required to pay a 20% down payment and your loan amount will be paid in phases.
- Home Loan: A home loan is long term, usually the span of 15 or 30 years. They have a low interest rate and potentially, a lower down payment. If you have a home loan, your loan amount is paid out immediately.
Now, let’s learn about the different types of construction financing options you can choose from.
- Land Purchase and construction in one loan: Land purchase and construction is a single loan that covers the cost of the land and construction.
- Construction-only loan: With a construction-only loan you are able to finance the construction of your new home on land which you already own. This loan covers only construction costs. The borrower is required to apply for a permanent mortgage loan once construction is complete, either with us or another financial institution (preferably us!).
- Bridge Loan: A bridge loan is a short-term financing option that offers flexibility to borrow money for up to a year. A bridge loan gives homeowners quick access to finances to purchase a new home before they have sold their current property. You are able to use equity on your current home as a financing option.
Building a home is a big undertaking, but worth it in the end. Contact one of our loan experts if you need help choosing a loan option that is right for you.