1. The initial steps to obtaining a construction loan are similar to that of mortgage loans. You will want to work with a local mortgage loan officer (MLO), who will walk through the process and explain how it works.
2. As you begin the homebuilding process, you can start by researching builders, purchasing land (if necessary), and coming up with a wish list and design ideas of what you want your home to look like. The beginning stages of your loan application will include a consultative meeting with your MLO. You will begin to share details of your project, plans and specifications. Your MLO will compile the plans, specs and costs for the proposed construction project and will then lead you through the application process. Based on your financial needs and building plans, your MLO can help you choose the right type of construction loan.
3. The most beneficial loan for you may be the construction-perm loan, with up to 90% financing with lender paid mortgage insurance approval. It provides funding for the six to 12-month phase of acquiring the land and paying the cost to construct your home.
- During the construction period, you will be making interest-only payments on whatever amount has been drawn by the builder (generally during the first 12 months).
- Once the home is complete, the final dollar amount is converted into a fixed rate product for permanent financing on your home. There is no need for a refinance or a second set of closing costs. When you set up the construction-perm loan, you will choose from fixed-rate loan terms, typically ranging between 15, 20 or 30 years. And the fixed rate is locked before you close on the construction loan.
The dream of building your own home is within reach. With your builder, lender and the right construction loan, you can make it happen. Go ahead, start planning!
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