Short-Term Construction Loans
This guide covers short-term construction loans. Purchasing a new construction home can be equally exciting and intimidating for many buyers. Real estate and mortgage experts can answer your questions before breaking ground, from comparing financing options to potential pitfalls a new build may have in store.
New builds provide owners with the convenience of move-in readiness, opportunities for customization, and efficient and modern designs.
New construction homes will give homeowners the peace of mind that no costly repairs will unexpectedly emerge in the immediate future. On the other hand, schedule delays, varied construction quality, hidden costs, and large down payments are just a few compromises you may make if you decide to move forward.
Are New Construction Homes a Good Idea?
You should hire a home inspection when buying a new construction home. It’s a common mistake to assume that because the home is new, it won’t have any problems. Ask your agent for a checklist as you do the final walkthrough, find issues upfront, and ensure you read the builder’s home warranty for future problems.
Buyers should know that the preferred lender represents the builder and will work to secure top dollar for them rather than the buyer. The greatest danger in accepting your developer’s partnering lender is that you simply won’t get the best loan.
Equipped with a wealth of knowledge and experience, these professionals will walk you through the ins and outs of buying brand new. Hire an independent inspector before closing on the new home to ensure the builder’s work is up to code and to identify any mistakes or issues.
Short-Term Construction Loans For New Homes
Let’s say you get your pre-approval, put down $10,000 in earnest money, and the house takes four to six months to complete. Something changes once you get two months away from closing and it’s time to get into the nitty-gritty of your loan.
Things that can go wrong while you are waiting for your new construction home to finish completion can be your credit score dropping or you lose your job. Several things may happen, and then you’ll lose that big chunk of change, and you don’t get the house. That’s the risk.
On the flip side, maybe your credit score is borderline, or you don’t have enough money for the down payment or the closing costs. The extra few months of construction can give you time to save that money and repair your credit so you could end up in an even more favorable position by the time the home is finished.
Risks With Short-Term Construction Loans on New Home Builds
It’s also important to note that delays and schedule changes are commonplace in new construction homes and subdivisions. The Lending Network, LLC team specializes in qualifying borrowers for approved home loans with scores as low as 500 FICO.
Materials and labor can fluctuate, the homeowner may request changes, weather may be unpredictable, and builder mistakes are typical. In the interim, you might have to obtain temporary housing or a storage unit.
“Make sure your loan officer has gone through your financials. You can avoid many headaches without pushing your limits and stressing your qualifications. Your loan officer can help you plan for these contingencies.
Work With a Broker To Get The Best Options For Short-Term Construction Loans
Buying a new construction house is unlike purchasing an existing home. Navigating the world of financing for new construction can be complex for the uninitiated. Knowing where to start cannot be easy with many financing options available.
Financing a project with short-term construction loans can be smooth and successful with the right guidance and knowledge.
Many builders for new construction homes will partner with a preferred lender that offers short-term construction loans for their buyers. Preferred lenders often offer short-term construction loans to buyers. This includes incentives, including upgrades to the home, credits toward closing costs, and a streamlined loan process.
Working With a Broker on Short-Term Construction Loans
The solution is simple: Working with a broker familiar with new construction home loans can open a vast network of lending options and programs, including banks, credit unions, and alternative lenders, securing a lower mortgage rate and saving you thousands.
An experienced agent will keep your best interests at heart and ensure you are not signing off on terms you cannot maintain once you move in financially.
How do you know if buying a new construction home suits you? We sat with industry experts to dig into their insider tips and top takeaways throughout the new construction home-buying process. Look into short-term leasing options or ask family members if they can accommodate you while you are between homes.
Searching For The Right Short-Term Construction Loans
Searching for the right loan options can be time-consuming, particularly if you are unfamiliar with the lending industry. Working with a broker can save you time, as they will do the research for you and present you with the best loan options.
Lending Network are experts in helping builders and investors get approved short-term construction loans.
The team at Lending Network, LLC is well-connected with local home builders and is known for her ability to negotiate for her clients throughout the home-building process, from securing a mortgage to completing construction.
Get Organized Before You Dig The First Hole
An important step in any home purchase is creating a carefully considered and definitive plan, which is even more crucial in purchasing a new construction home. Due to the upgrades, selections, and extended timeline, the entire experience is wrought with the opportunity for your budget to get off track.
Because there is significantly more documentation on short-term construction loans than on conventional loans, paperwork can get lost in the shuffle.
Purchase binders, use file folders, and make copies of everything. Having all the necessary documentation and information readily available is important to streamline the process. This includes your credit score, current financial statements, construction plans, and cost estimates.
Getting Approved For Short-Term Construction Loans
Write down your priorities and clearly define your wants from your needs. Managing cash flow is crucial when financing new construction projects. Having a detailed budget and monitoring expenses carefully is important to avoid cost overruns.
Experts encourage buyers considering a new construction home to know what the home’s property taxes will be, learn about HOA fees and regulations in the new neighborhood, and research the area.
It’s also essential to have a contingency plan in place in case unexpected expenses arise. Working with a financial advisor can help you manage cash flow and stay on track throughout construction. Monthly costs can range from a few hundred dollars to over a thousand, and the services, regulations, and amenities provided by HOAs can also vary.
Weigh the Costs of Post Short-Term Construction Loans Before Signing The Dotted Line
It is not easy to think about life after the new home build when custom closets and shiny countertops are on your radar. It’s vital to consider and prepare for expenses that will affect you after you move in. Property taxes on new construction homes is an unknown. Calculating higher property tax numbers versus a lower number is always safer.
You will need to qualify for that higher property tax number, even though your actual tax bill will likely be lower once the house is complete and they reassess it.”
When the new appliances and modern fixtures lose their novelty, homebuyers can experience buyer’s remorse – not because they don’t love their new home – but because they forgot to account for costs beyond construction. Deciding to purchase a new construction home is likely one of the most significant choices you can make. There are several variables to consider and many steps from start to finish, yet the ultimate result is a pristine home customized to match your requirements, style, and desires.
How Property Taxes Are Calculated on New Construction Homes
How underwriters determine property taxes on a new construction home is a complicated calculation. Loan officers should never compute it by themselves. It’s usually a high number – around 2% to 2.5% of the land cost plus the construction.
Buyers should also budget for the expenses and rules associated with the Home Owners Association (HOA) of the new development.
While some homeowners appreciate the regular maintenance services provided by many HOAs, such as snow blowing, gutter removal, or lawn care, not all HOAs offer these services, and you could face fines, legal action, and more problems if you are not willing to abide by the conditions and restrictions.
Knowing Your Area in New Construction Homes
New construction real estate and mortgage experts recommend that buyers research the property’s surrounding area as another planning measure. Remember that new developments often emerge in up-and-coming or still-developing areas rather than established communities.
We love helping people envision their dream, answer questions, and examine the options available to them. The team at Lending Network, LLC is often consulted as a prominent new construction home lending expert.
Often, people can be intimidated by the idea of building a brand new construction home from scratch, and letting them know it’s possible is one of the most rewarding parts of our job. Your commute to grocery stores, schools, the office, the mall, and other amenities may be longer until the area can mature around your subdivision. It would help if you also explored home prices in the surrounding areas to get an idea of your new construction home’s resale value a few years later.
Don’t Assume You Can’t Negotiate
While it is unlikely a builder will be willing to negotiate the sale price of a new construction home. The Lending Network, LLC team has a great deal of experience getting clients a better deal throughout the build. Buyers can ask builders to forego a new deck, for example, instead of fencing during the planning phase.
You can also purchase your appliances and shop around for sales while construction continues, lowering your final price. Your agent can help you review, negotiate, and swap other interior and exterior features.
Learn about the builder’s seller concessions and incentives. then find out what other builders are offering. The builder may be open to paying some closing costs or buying down the interest rate to close the deal. But be cautious: many incentives that reduce the buyer’s financing are only redeemable if the buyer uses the builder’s preferred lender.
Get a Free Consultation
Information is always your greatest ally. Use reputable lenders offering free consultations to discuss your specific circumstances and questions with seasoned professionals. Not only will this allow you to gain valuable advice and expert insight, but it will also help you establish relationships with potential lenders.
The consultation is the perfect first step if you don’t know where or how to start. You have the opportunity to ask questions and gather information on your needs, budget, and timeline.
The advice can help you determine if a new construction build is a good fit for you and your family and provide suggestions for the next steps you should take in your home-buying journey. If you need help figuring out where to start, call us! Lending Network, LLC is available seven days a week, including evenings and holidays.
Types of Short-Term Construction Loans
The Lending Network, LLC team can answer your questions, support you through the new construction process, and connect you with all the needed resources, including title companies, attorneys, and real estate agents.
Lending Network, LLC has extensive knowledge of the new construction lending industry, are skilled negotiators working on your behalf, and help you navigate the complex building experience easily and smoothly.
While working with our team, you will have exclusive access to our top-rated community of resources, networks, and home specialists that will be available to guide you in making well-informed decisions. For further assistance with financing options, comparing rates, and learning about loans that can fit you and your family, contact at gcho@lendingnetwork.org. Call us to speak with a loan officer or get pre-approved today! Lending Network, LLC simplifies the home buying process for every buyer.
