Once you have selected your home plans it’s time to start establishing your budget and determining how much you feel comfortable spending on your mortgage. So put your home plans to work for you by sending them out for quotes by local home contractors and home builders and start creating your new home construction budget.
After you have established a baseline of the cost you need to begin shopping for the right lending institution. First, you will apply for a construction loan, which is a short term loan designed for new construction processes. Once your new house is complete you will apply for a typical residential mortgage that will pay off the construction loan. While your construction is underway you only be required to pay the interest on the amount of money that you have accessed at the time.
When you obtain your construction loan, you and your builder will have agreed to a draw schedule that determines how much money is to be released to your builder at each phase of completion. Make sure to be thorough while inspecting each phase of completion to ensure that you do not agree to release funds if the stage of the construction is not sufficient for a payout. Typically your lending institution will also perform a standard inspection at each release of funds. This is to protect you from having more money invested than you have a new home constructed on-site. Also, make sure that any changes that you make to your new home are agreed to in writing and approved by your lender to ensure that you come out with sufficient funds at the completion of the home. Change orders are also vital to have in place to make sure your builder lives up to his end of the deal.
Once all construction is completed and approved by you and your lender, make sure that you get a lien release in writing from your builder or all contractors involved in the construction of your home. Then you can convert your construction loan into permanent financing and enjoy your new home.