A home is one of the most significant investments that a person makes in a lifetime. Not everyone can muster up the funds necessary to build a house on an empty lot. However, fund-shortage should not be a reason to deprive yourself of the joy of home ownership; there are various financing options available to people aspiring to build homes on their lots. However, bear in mind that not every type of loan is applicable for on-your-lot construction, and the amount usually varies according to the health of your personal finances.
Changes to the Financing Structure
Earlier, new home building loans came in two phases – a short-term construction loan and a permanent mortgage for the long term. However, this was quite inconvenient as homebuyers had to contend with two closing, increased transaction fees, duplicate charges, and risks associated with the maturity of the construction loan. All that changed (for the better) with the introduction of the Construction-to-Permanent Loan. Also known as an “All-in-One” or “Single Closing” construction loan, this is the most popular financing option for first-time homebuyers. Borrowers who opt for this financing have only a single loan to deal with and one closing. Plus, the construction loan gets converted to a permanent, long-term mortgage once the on-your-lot construction phase is over.
Allocating Construction Funds
Once you secure the construction loan, you can use the funds to either build a new home on a lot that you already bought or if you don’t have a lot yet, you can finance its purchase and then begin construction. In fact, existing lot owners can include their equity in the property as part of the construction loan’s collateral. Borrowers who buy the lot with money from the loan can use the remainder of the loan to pay off and refinance that first loan.
Finding the Right Lender
- Start by testing the waters to check what sort of financing options you’re being offered.
- Make sure that the mortgage broker or lender understands your needs and have the experience, resources, and network to provide the loan you want. Remember loans for vacant land are not available from all mortgage brokers or lenders.
- Get pre-qualified to have a better perspective on your budget as well as your economic limitations.
- Opt for mortgage brokers instead of regular banks to get better loan deals.
On-your-lot financing has numerous options, so it’s easy for first-time homebuyers to get confused. Thankfully, you can easily contact Allstatehomes, and the staff can arrange for suitable financing after determining the cost of your new home. Click here to seek their help in choosing a good, experienced lender who specializes in funding on-your-lot constructions.