Show Me the Money
One of the first questions you ask yourself when considering the home plans to build your dream home is – Where is the money coming from?
You will need a large sum of money and it is most likely you will have to borrow most of it. Where and how you borrow this money will determine whether you pay a reasonable amount or too much for the money you need for your new home.
How to Start
The first consideration is - How much money will I need?
No matter what the style is you’re building, whether from traditional or even picked from a variety of French country house plans, you must have at least one set of blueprints. Most building contractors can give you an approximate cost of construction fairly quickly. This is important when you have to decide if any design modifications are required to stay within budget.
For example, let’s say your property and house will be valued at $150,00 by the lender providing your long-term mortgage. If the land is valued at $30,000, you should need $120,000 to pay building costs. It is likely you will need to get a construction loan. This is a short term loan that is used to pay for building your house. When the house is complete, the loan is paid in full, usually from the proceeds of your long-term mortgage loan.
Lending institutions offer construction loans to developers and builders. The best way to get a construction loan is to apply for a long-term mortgage at the same time to make you a more desirable customer because you will be paying interest over many years. Also, you may be charged lower interest for the construction loan than if you borrowed it on its own.
To get financing for your home, you need to put together:
•Specifications and buildings plans for your house
•High quality drawings that reduce errors, risks and loss of time
•A building permit from your local housing authority
•To get a permit, submit plans, specifications and a site layout so the building permit department can verify you meet local building code regulations and zoning
•A list of the licensed building contractors and subcontractors who will help build your house or the name of your general contractor
•A written, signed agreement with your contractor specifying the work to be done and the costs
•Waivers of Lien signed by your contractors to protect you in case they don’t pay their workers
•Evidence you have liability insurance against fire, damage and theft during construction
•Your personal financial records and statements.
Generally speaking, you will arrange for permanent financing prior to construction financing. This is particularly true if you are borrowing from two different sources. The commitment to lend money on your completed home is security on your construction loan by the second lender.
If you want your mortgage loan guaranteed by the Veterans Administration (VA) or Federal Housing Administration (FHA), you need to approach those agencies before going to a lender. Take your building plans, specifications and personal financial statements with you and if the agency approves your application, it will issue a commitment to insure your mortgage loan. This commitment will make you a more attractive risk to any potential lender.
Loan Sources
There are three principal sources of allied construction loans and mortgage loans – banks, mortgage bankers and savings and loan associations. No matter which institution, shop carefully for your loan because you will be paying a lot of interest for a long time. Make sure you pay the lowest possible total interest and compare costs before choosing a lender.
While you search for financing, remember this is the biggest financial commitment you will probably ever make and it really pays to be thorough when selecting your loan for your traditional house plan.
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