In many cases home building will require that you obtain a construction loan, but it depends on which home builder or contractor you select. With both, you will need a down payment.
For the purpose of this article lets focus only on a construction loan and what will be required of the construction loan down payment. The first thing to understand is construction loan down payments are usually higher. Because of the risk associated with building a home most lenders require a minimum of 20 percent of the builders estimate to build and actual building plan.
What you will need to do is discuss with the lender you chose to find out exactly what percentage your construction loan down payment will be. This usually will be based on your lenders loan to value ratio.
As for the type of construction loan, there are many choices including 15 and 30 year fixed, one year, and interest-only loans. You can even get a short-term one-year loan that has to be refinanced into a new mortgage when the construction is done. This costs you two sets of closing costs and you must re-qualify for mortgage loans than when dealing with lenders. Today’s most popular construction loan is the “one time close” also called the “all-in one,” “rollover,” or “construction-to-permanent” loan. These come with one set of fees and one closing cost.
No matter what type of construction loan you select, there’s no way of getting around a construction loan down payment. Let’s recap…
Construction Loan Down Payment Quick Overview:
1. Understand that construction loan down payments are usually higher
2. Find out what percentage of a down payment you will need
3. Select what type of construction loan you will apply for
4. Learn more about construction loan down payments by downloading the free New Home Steps Guide above and become construction loan savvy.