Home Construction Financing

Home construction financing can be a tricky process, especially if the future homeowner is contracting out all the work himself. The financing of a house yet to be put together is a far different animal than securing the loan of an already existing property. A number of things need to be understood in order for the entire project to go smoothly, at least financially. The discussion regarding home construction financing needs to begin with a builder financed construction loan. "Except the Lord build the house, they labour in vain that build it; except the Lord keep the city, the watchman waketh but in vain." (Psalm 127:1)

Home construction financing for a new property can be secured in one of three ways: the builder finances the construction and after completion the buyer secures a permanent mortgage or the buyer gets a construction loan and after completion gets a permanent mortgage loan, or thirdly, the buyer gets a single loan covering both the constructions phase and the after completion long term residency of the builder/buyer. Each of these approaches has its own set of advantages and disadvantages. With all of the things can go wrong with sub-contractors and the difficulties of getting permits and other paperwork completed, anyone taking on the task of being their own contractor is flying in the dark without instruments when home construction financing is not understood. Because so much can go wrong, many of those wishing to build a new residence choose a builder who will take care of the entire home constructing financing themselves. Of course, in this case will add some cost to the final home mortgage lending agreement the buyers must secure, however the headaches are much less.

Perhaps someone chooses to have a construction loan for the period of building and then a permanent loan from another lender which pays off the first loan. This means that the buyer will have to pay two sets of closing costs which could be very expensive. Home construction financing loans usually have the length of about six months to a year and will be adjustable in nature, carrying a higher rate than a permanent ARM. Since a general contractor pays out accrued expenses as they are incurred, the buyer of an under constructed house will have to keep track of all work being done and do QC work before any bills are approved. Multiply that approval for every sub contractor and a great deal of time can be experienced in both the management of the actual construction and the approval of every single expense.

There is also the combination loan which may make home construction financing a fairly simple process, but there may be some pitfalls to this option also. First, in most cases, a down payment will be required which can be met by either cash or a land equity arrangement. In the case of the land equity option, the property will more than likely have to be free and clear of any liens. Additionally, the buyer will have to have a high enough credit score to qualify, meaning that in many lenders' cases a 640 or above will be needed to secure this combination loan. Additionally, the buyer will have to have a debt to income ratio of forty percent or less. This ratio is established by looking at monthly income versus the amount of debt repayment that goes out each month, including the combination loan being considered. The ratio typically will have to be lower than forty percent.

One of the issues regarding this combination home construction and permanent mortgage type of home construction financing is that the buyer cannot be the general contractor. This is a safeguard to prevent a novice who has no idea what building is all about from taking a lending institution's money and creating a pile of lumber and concrete that has no value. IN fact, for the construction/permanent lending agreement, the contractor will have to be a reputable builder approved by the lending institution. If the lender does not have flexible schedules for the contractor to draw from, the agreement will probably not be reached. For example, if the contractor likes to pay sub contractors on the first and third Wednesdays of the month and the lender is only willing to have a draw once a month on the last Friday, that can be a quick deal breaker.

Perhaps one of the most exciting things a person, couple or family can do is design and then build their dream home and have the opportunity to live in the place of their own conception through the aid of home construction financing. Sometimes months or years of planning are needed before such a project can be financed and undertaken and once occupancy is taken, a quiet evening on the patio to drink in the reality is often needed to process all that has happened. But way too often, home owners who have built their own dream home make the same mistake as young people getting married. It is not uncommon for a young couple to take a year or more of countless hours planning the cake and the menu and the place of the reception and the colors and the theme and the location of the church and on and on, and spend almost no time planning how the marriage will guided by spiritual truth. Similarly, a home builder/buyer can take years to plan how to build a dream house, but not one minute on how to die. People often live as if planet earth existence is forever, when in fact it is like a morning fog that it very quickly burned off and gone. Be afraid to die not if you haven't done wonderful things for humanity, but rather if Jesus Christ is not supreme in your life.

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