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There are many benefits to owning your own custom home. You can make everything exactly the payday loans Montana way you want it to be and new homes are built using higher standards and materials. You can also integrate green upgrades and technology to create an energy efficient home. Hiring custom home builders in Amarillo, Texas is the best way to get a custom property in the area. There are several steps to completing the construction of your custom home, but the first is receiving a new home construction loan. It is important to understand how these loans work and how to qualify for a new home construction loan.
How construction loans work
Most Amarillo builders have a line of financing to construct your property, which makes it easier for future homeowners. These Amarillo home builders will take care of all the payments and draws during the construction of your new custom home. Once completed, you will set up permanent financing for the custom home with a mortgage lender. Then, the Amarillo home builder will release all liens on the property for you to move in.
To get a construction loan, you should start with finding a lender, which will typically be a bank. New home construction loans, unlike mortgages, are short-term. You will still have to pay a down-payment, which is usually between 20 and 25 percent of the home’s cost.
The loan will allow you to hire and pay custom home builders. The builders are paid by taking a series of draws against the loan. You will negotiate with the builders and the lender on the terms of the draws. Typically, the custom home builders can take draws when they meet certain milestones like, like getting permits. Generally, the first draw will be against your initial down payment for the loan. Once the house is finished, the lender then allows you to refinance the loan into a more sustainable mortgage, like a 30 year fixed mortgage.
Qualifying for a new home construction loan
Unfortunately, qualifying for a construction loan is not an easy process. You are asking the lender for money for something that has only been planned. The bank is gambling that the house will be built and that it will be worth as much as you say.
To get a new home construction loan, you generally need four things. First, most lenders will not give you a construction loan unless you work with qualified builders. Lenders want custom home builders that are licensed and have a proven reputation. Second, you will be asked to provide detailed plans on the construction, materials, timeline, and final layout of the home. You cannot ask for a loan until the entire process, plan, and final product is settled.
Third, you will need to get the home appraised. The appraiser will estimate the value of the anticipated property based off of the plans and the land. The bank will then compare your future home to others in the Amarillo area to arrive at a rough value. Finally, you need to pay a large down payment. This down payment is the final security in case everything falls apart. Once you have completed all of these items, assuming you have acceptable credit, the lender will approve your construction loan.
Most new home construction loans are interest only, which means you only pay on the interest and not the principal. Additionally, you only pay interest on the amounts actually disbursed to the builders. Most construction loans are based on a prime rate plus method, meaning that the bank sets a number that is added to the prime rate. For example, if your set number is two and the prime rate is four, then your interest is six percent. The prime rate can change, but your set number never does.
Things to watch out for
It is imperative that the construction of your property progresses on a schedule. Any delays could be fatal to your new home construction loan. If the construction time takes too long and goes over the allotted time in the loan, you will need to ask for an extension. The bank can deny the extension, which means your home could sit half completed. Working with custom home builders in Amarillo who have a great reputation is a good way to avoid this issue.
Remember, construction loans are only short-term, so you need to keep your income and credit in good standing throughout the building process. Any interruptions could be fatal to getting your construction loan refinanced into a long-term mortgage.
Building a custom home can be an incredibly fulfilling experience. If you would like to learn more about custom homes, contact the expert builders at Champion 1 Builders in Amarillo, Texas. Our team of experienced builders can create the custom home you have always wanted. Call us at (806) 282-6903 or Contact Us by email for more information about our services and the houses we are building in the Amarillo area.