Everybody who considers building a new home asks themselves, "How am I going to pay for it?!" While financing any new home project can at first seem confusing, intimidating and a bit overwhelming, you can breathe easy, because it’s not as hard as it looks.

The first thing you need to do is find a lender that will loan money for construction projects. Unfortunately, many don’t right now. We suggest you talk with small lenders like regional and local banks (and not so much banks you see on TV).  

 

Once you find a lender, they’ll want to know what you're building or proposing to build, so they can perform their appraisal. Don’t worry if you don’t know yet, or have full drawings to get approval for the loan. Most lenders can get an appraisal from floor plans like this and a specifications list from the builder. Once the lender receives the appraisal, they will let you know how much money they are willing to lend.

 

Generally most lenders offer the following:

• 70-75% Loan to Appraised Value
• Terms of 1-2 Years
• Interest Only Payments During Construction Period
• Loan Origination Points of ½ to 2 percent of the Loan Value

 

Lenders do consider equity as cash so if you have a lot of equity in the home, it can help during the approval process.  

 It’s best to start the loan process 60-90 days before closing on the loan so you’ll have plenty of time to work through things like income verification, construction budget review for the home, a financial statement review, and appraisal. Then you can focus on the most important part: Building your brand new home!