Loans for Building a New Home

Choosing the right type of loan when building your dream home can save you thousands of dollars over the term of the loan. Here is some information pertaining to the types of loans available to individuals wanting to build a new home from the ground up.

Types

New home loans come in four different varieties: FHA, VA, Conventional and Adjustable rate. All of these loans will require different things from a home buyer, and all will have to incorporate the cost of construction and any changes made during the building process.

FHA Loans

FHA loans are one of the easier types of loans to qualify for. When building a new home, FHA will require all proof of income, debt and any other factors needed to qualify for a normal home loan. After this, they will issue a pre-approval, dictating the total and maximum amount that you are approved for once construction is complete. If costs exceed this amount once the home is complete, you will be unable to qualify, so it is important that you stay within budget.

VA Loans

Similar to an FHA loan in the pre-approval process. Qualified veterans can apply for a VA home loan when having a home built providing that the home meets certain energy efficiency requirements. Qualifying documentation and proof of income must be provided before the start of construction as well as again once a closing date is set for the home.

Conventional Loans

Conventional loans provide home buyers the most flexibility when it comes to financing construction. Because these loans provide for different construction circumstances, the home buyer has more control over when funds are disbursed to the contractors. However, they do not provide the same amount of control if purchasing a home from a pre-fab or tract builder.

Adjustable Rate

Adjustable rate construction loans allow for home buyers to qualify for higher sales prices of homes up front. Because of this, it is easier to foresee and provide for any construction mishaps. The interest rate will remain low for the first three to five years after building the home, and will increase from that point on. These are the best types of loans for construction of a new home, as they allow for unforeseen expenses without forcing you to walk away from the home should it come in over budget.

Warning

Be flexible if something that you must have in your home comes in at a higher price, and be prepared to make some concessions when it comes to items on your want list. Not having this list and flexibility can mean having to walk out on your dream home if it exceeds your finance approval limit.