Building a home for the first time comes with some new styles of financing with which to acquaint yourself. Borrowing funds to cover the process will likely include a construction loan.
Read on for five things you should know about financing a home construction project.
Just like you would encounter with a traditional mortgage, a construction loan often comes with a required downpayment. This can reach as much as 20 percent in some cases. That’s why you should plan on saving up a bit prior to embarking on your construction journey. You may have to offer up some starter money to get the loan rolling.
Sioux Falls Fed is a rarity—we don’t require a downpayment on our construction loans. Talk to a lender about your options.
Construction loans don’t function quite the same way that typical mortgages do. In fact, most often, your construction loan payment plan will include solely anticipated interest payments until the construction is complete. (This interest rate may vary during the construction.) Then, once you’re issued a certificate of occupancy, the total of your loan is due.
That’s where a mortgage comes in—let’s talk about how Sioux Falls Fed can help. Our credit union doesn’t even require payment during construction!
Speaking of paying off your construction loan balance, there are options for how you approach this, depending on your lender. Some construction loans are paid off by a completely separate mortgage account.
The best way to ensure a speedy preapproval on your construction loan is to come to your lender with a clear-cut budget plan. Have a lot chosen and house specs outlined—in addition to a contractor in writing—to share with the loan officer. The more detail, the better—it’ll make it easier to approve your financing.
Most construction loans operate differently than mortgages in that you are advanced funds to cover construction costs based on designated milestones. This is often up to the lender’s discretion, but may include closing on your lot, foundation completion, roofing completion or even specific time periods.
The mortgage pros at Sioux Falls Fed are ready and waiting to make the construction loan process as smooth as possible for your next project—contact us to get started.