Getting a custom home loan can be a bit more challenging than getting a loan for an existing home. Custom home loans are very different than home-buying loans because you don’t have a physical asset to secure the loan from the start. You’re essentially taking out a construction loan on something that doesn’t yet exist and whose actual and final value won’t be known for several months. This means there’s a much higher risk for the bank resulting in greater scrutiny and tougher requirements for you.
Here are some things to keep in mind if you want a custom home loan:
Find A Construction Loan Specialist
Traditional home-buying loans are the same across the nation, with the same guidelines. For construction loans, each bank has its own approach. Even within a bank, specialists have different experience levels. Because it’s such a unique process, its best to work with a lender who has ample experience with custom home loans and who can anticipate issues and give you support accordingly. Lady Street Builders has a list of vetted, preferred lenders who specialize in custom homes, if you need it.
Prepare for Tougher Requirements
From every angle, getting a custom home loan can be difficult, and borrowers need to be in better credit shape. You’ll need a bigger down payment (at least 10%) than you would with a traditional mortgage, and your income level requirements and your credit number will also need to be higher.
See also Building Versus Buying A Home
One of the biggest differences between a construction loan and a home-buying loan is timing. Lenders will need permits, county approvals, and appraisals. Lean on your builder to help keep the famously slow permit process moving and get the timing for construction planned perfectly.
Check your Septic
Most loans cover everything except septic design, but the bank will want to know that you can get the septic design to match the house. Your builder can assist you with septic and clearing research so your bank is ensured that the land you own is feasible to build on.
Watch Spending Closely
Be careful if you’re tempted to get the site developed as quickly as possible; most banks require money in reserve to prove your financial health, so if you spend that on an excavator and a well builder, you may use up that reserve.
See also Tips For Purchasing Land To Build On
Choose Your Builder Wisely
The loan process is stressful, but an experienced custom home builder, like Lady Street Builders, can help ease some of the burdens by consulting with you on your total project—budgeting, planning, site development, and building—staying on schedule, and locking in your budget in advance.
Have A Basic Idea Of Design
Borrowers should have a basic idea of their home design before they visit the lender. To get an idea for the cost of construction and devise a starting number, lenders will need to know square footage and rooms and so on in order to gauge the time and materials needed to build and the worth of the home when it’s completed.
Stick To What You Can Afford
Even if it means you might have to compromise on some features, you want to ensure you’re building a home that won’t stretch you beyond your means.
Start with an experienced builder who will provide you with a budget range for your total project. Then you can get in touch with different lenders to see what programs and loans they offer that will work for you.
We hope these tips for getting a custom home loan are helpful to you! If you’d like to speak with someone about building a home on your lot, call on Lady Street Builders. We have a terrific array of plans to inspire you, we could build from your existing plans, or we can build your home from the bottom up. We’ll build on your existing land or we have properties that you may like. Contact us today.