When you decide to work with home builders on building a new house, you’ll probably start to look for ways to finance the project. Loans for newly built houses are slightly different from regular mortgages, so you should make sure that you’re aware of how the new construction loan process works.
Step 1: Create Your Plan
Before you talk to a mortgage broker, you should develop a vision for your new house. Decide on its size, scale, and location. Also, consider factors that might make the project more complex. For example, if you decide that you want solar panels or geothermal energy, then your project may require special sources of financing before it the home builders can get underway.
Step 2: Research Your Lending Options
Although new construction has increased significantly as available house inventory has sold down, many lenders got away from new construction during the economic recession. Some of these lenders left their clients without financing in the middle of the building project. Do some research to make sure that your lender has a good reputation.
In addition to ensuring that your lender is in good financial shape, you’ll also want to look for the best available interest rates when you’re shopping for a loan. To save time, a mortgage broker can research multiple lenders for you to find the best option.
Step 3: Conduct a Builder Review
Once you’ve selected an appropriate lender, your lender usually starts researching your chosen construction company by performing a credit check. The lender may also contact subcontractors that have worked for the company to make sure that it has a good reputation. Before starting the process, you should have some pre-permit architectural plans and a budget for your project. Also, supply your lender with the draft of a contract.
Step 4: Project Review
While your lender’s underwriter is reviewing your application, a project review specialist usually looks over your new construction plans. The reviewer may make plans that can cut your project budget, or your reviewer may find important items that the construction company has missed. Make sure to include some sort of contingency line item in your loan papers to cover any missed items. This line item can help to prevent you from incurring out-of-pocket costs.
Step 5: Loan Approval
When you receive a loan commitment letter, your application, your builder review, and your project review are usually satisfactory. Before releasing funds to your home builders, the underwriter may ask for a few small items. These items include missing signatures, property insurance updates, and additional documentation.
Step 6: Loan Closing
After approving your loan, your lender usually releases the documents to a closing agent such as an escrow officer, title agent, or real estate lawyer. Once the agent researches the title, obtains title insurance, and prepares a closing estimate, your lender usually prepares the closing documents so that you can sign all of the papers. Even though new construction loans require a few extra steps, you’ll appreciate owning a house that’s built exactly to your specifications.