You’ve done it! You’ve found the perfect home or lot for your family, and you’re ready to take the next step. Planning for a new home, whether you are buying an existing home or planning to build the house of your dreams, takes careful planning and a knowledgeable financial partner to help you through the process.
The first step is to secure financing that is right for you and your family. This means determining what type of loan you need and working with a reputable financial provider for your End loan or Construction loan. If you are purchasing an existing home, you will need an End loan – or, as more commonly called, a Mortgage loan. End loans are available in terms of 10 to 30 years, in a variety of types. Working with your loan officer, you can determine the best options for your personal needs. End loans are paid back monthly and include all of the interest due plus an amount of principal so that the loan is amortized over the agreed upon period of time.
If you are building your home, you will need a construction loan, which are typically short term loans used to pay for contractor fees and building supplies in advance of construction beginning on the new home. As construction continues, draws on the construction loan are made in order to pay for the parts of the work that have been completed. The important difference for the homeowner is that every month, a payment is due in order to pay the accrued interest on the funds that have been paid out. This means payments made later in the building process will be greater than those made early. No principal payments are due on the Construction loan. Upon completion of the new home, a borrower’s loan liability will typically roll over into a mortgage loan as discussed earlier.
If you are building your home, you may want to consider a third type of loan called the Construction-Perm loan, which is a hybrid of both the Construction and End loan and requires only one application and one closing. A single application may save you money and can save you the hassle and aggravation of going through the borrowing process twice for the same purchase. In addition, it guarantees – as long as you have paid the interest on the Construction loan as agreed – that you will have a satisfactory mortgage when the home is built. While not every loan can be done in this manner (check with your lender on your specific situation), it is a great option for projects that qualify, and can be a great option for homeowners looking to keep the financing of their home construction project simple and streamlined.
Thomas R. Murray
Mortgage Loan Officer