NEW CONSTRUCTION HOME FINANCING—TIPS AND TYPES

​Designing and building your new Southeast Michigan home can be a dream come true. The financing of your dream home, on the other hand, can be challenging and frustrating. This is because banks have always considered new construction loans to be inherently risky. Worse yet, the bust of the 2000s rendered many lenders stuck with an inordinate number of these loans on their books and many new construction loan programs have disappeared.

Custom Homes Cost More

It is more advantageous to choose one of the builder’s models than to design a custom dream home and expect the builder to construct it. Custom built homes require more money down and the buyer usually has to jump through additional hoops to secure financing.

Most builders offer a variety of pre-designed exteriors and interior floorplans, and allow buyers to select from an array of upgrades to ensure buyers are building a home that reflects their personal design tastes. The end result is the home of your dreams without any financing nightmares.

Before embarking on the adventure to build your dream home, it is important to become familiar with the different types of new home construction financing.

Construction-Permanent Loans

A construction-permanent (CP) loan is a three stage mortgage that enables buyers to finance lot acquisition, the actual construction of their new home, and then upon completion, roll them both into a permanent loan. CP loans differ than other new home construction mortgages because buyers can lock their interest rate and close on the loan before construction begins. Fortunately, CP loans have a one-time closing which eliminates the requirement to undergo a second qualification process for the permanent phase of the mortgage.

CP Loans are also beneficial because during the construction phase, a disbursement is made to cover the cost of the actual construction and interest is paid solely on the outstanding balance. Once the new home is built, the loan is converted to a permanent mortgage with which most people are familiar—monthly scheduled payments are made on the principle and interest, plus escrows if elected during the processing of the CP loan.

New Construction Loans

Current economic trends have made it quite difficult to obtain construction-permanent loans compared to earlier decades. Fortunately, you can still find excellent new construction home loans in Southeast Michigan. Often called ‘end loans,’ new construction loans require the builder to carry the financial responsibility of the actual construction.

Once the buyer has signed the contract, the builder breaks ground and begins construction. After the Certificate of Occupancy or C.O. is obtained, the buyer takes out the end loan. Practically any type of conventional loan can be used for the end loan which makes the qualification process much easier.

Unlike traditional home loans, new home construction loans are more complex. Contact Echelon Homes today to make the construction of your new Southeast Michigan dream home a reality within budget!

Article by: Jennifer Elkow