Do you really want to build your own house? The planning, budgeting, change orders, cost overruns, time commitment and anxiety… but, admittedly, it still may be the most economical way to own a home.
Then there are ramifications behind financing either the construction of a to-be-built home, or the acquisition of a home nearing completion. If you own the land, then you would need a construction loan – and your land investment would likely act as the equity or down payment for your lender. Construction loan draws would reimburse the builder as the home reaches certain levels of completion. Once completed, the construction loan would convert to a standard mortgage.If you are buying a speculative or partially completed home, then standard purchase mortgage guidelines should apply after you sign the builder’s purchase contract. Once the builder completes your home, your mortgage lender provides you acquisition financing (loan closing would coincide with receipt of the certificate of occupancy).
In either case, builders also hope to profit from your loan. They do this by offering attractive financing incentives, such as covering a portion of your loan closing costs if you use one of their affiliate or approved lenders. But be careful, because when they say: “We will cover closing costs if you use one of our approved lenders”. Not only will your interest rate likely be higher, this really means: “We will not provide any closing cost credits unless you use our affiliate lender” (thereby essentially “tying” you to their loan source).