The Lending Process & Custom Built Homes

Published February 20, 2020

Like most other homeowners, you need financing to achieve your dream of having a beautiful, custom-built home. Even though you need a mortgage for new custom homes the same as you would for any existing home, the lending process involves a few more steps.

To make it easier, always work with qualified new custom-home builders that your lending institution is willing to trust with your home-building project so you get the financing you need.

Mortgages & New Home Construction Loans – Not the Same Thing

When you decide to custom-build a house, the first thing to know is that you must begin by getting a new home construction loan, not a mortgage.

Mortgages are loans on an already existing building. New custom home financing is a loan to actually build the structure. These short-term loans cover the project while your builders are working on it through its completion.

What Is the Process for Getting A New Construction Loan?

From the moment you contract with new custom home builders until you have a beautiful, brand new custom built home to live in, you will go through a number of financing steps to make it all happen:

Shop for Lenders

Not every lender offers new construction loans. Those that do typically offer them as variable-rate loans. Research your different lenders to make sure you find the best one; be sure that you understand and agree with the terms.

Choose the Right Builder

After you find a lender, you need to choose a contractor. Since your lender may not agree to work with all new custom home builders, it’s essential that you first find one that qualifies for lending from your institution before you apply for any money.

Get Your Plans Approved

Once you have a lender and a contractor, you must present your building plans to your lender for approval.

Have Your Home Project Appraised

Before you can borrow money and start work on your new custom home, your lender needs to know how much the home will be worth. An appraisal must be done by an expert who can appraise based on the plans and materials as well as by comparing to similar houses in the area.

Make the Down Payment

After an appraisal value has been established and your lender has approved both the building plans and your contractor as well as worked out the financing details, you must make a down payment. Loans for new construction on custom-built homes usually require 20%, which is considerably higher than the down payment of 10% required for most traditional mortgages.

What Happens After the New Construction Loan?

Because new construction loans are short-term loans designed only to finance a building project, you will still need to apply for a traditional mortgage once the house is complete.

You must apply for a traditional mortgage that pays off the balance on the construction loan, which you must pay off like any other mortgage you may have taken on an existing property.

Final Thoughts

If you are considering new construction to build your dream custom home, start researching your financing options early. Find the best lender who is willing to work with you and your custom home builder and look into how to minimize any potential issues that could affect your project.

Once you have your lending process outlined and underway, you’ll be glad you chose to build the new custom home of your dreams!

Building A New Custom Home in Brazos County? Contact LaFollette Custom Homes at (979) 589-8343 to learn about our home-building process. Let’s Build Together.



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