Thinking about building your dream home? That’s great! When it comes to financing a new build, there are a few things to know.
For starters, a construction loan has some notable differences from a traditional mortgage. And at first glance, the whole process can seem overwhelming.
But take heart: The professionals at Honor Credit Union have your back. They’ll walk alongside you the whole way, right up until you walk inside the front door of your brand-new home.
“It’s spring and it is officially construction season, so let’s get at it,” said Mary Remynse, Mortgage Loan Originator. “Look around and you’ll see the ‘Financed by Honor Credit Union’ signs throughout our communities.
“We’re right in your hometown. You can come and see us. You can ask questions. You can give us a call.”
How A Construction Loan Works
When someone finances an existing house, the mortgage and down payment cover the full amount of the purchase price up front. A construction loan works differently because homebuilding happens in pieces: first the foundation, then the framing and eventually the plumbing, electrical and everything else.
While a mortgage is tied to a purchase agreement with a seller, a construction loan is tied to a contract with a builder. The contract specifies certain milestones, with payments scheduled along the way.
Each time the builder requests a draw, the appraiser heads out to the job site to confirm the work has been done, and then some of the money from the loan is paid out. You don’t have to make any fixed monthly payments during construction, but you do pay interest on the contractor draws.
It can be a lot to keep track of, but Honor Credit Union will handle the details. They’ll make the process easy, from application to occupancy. In fact, with Honor, applying for a construction loan is just like applying for a mortgage.
“For the borrower, I’m going to still need income verification and assets to see if they have the funds for the down payment,” Remynse said. “My instructions are to fill this application out as if you were purchasing that home ready-made in the total amount. Then, on the back side, I convert it to a construction loan.”
Things To Think Through With A Construction Loan
Now, the timing on a construction loan can be tricky if you already have a mortgage on an existing home. Unless you’re planning to sell your home before beginning construction, you’ll have to prove that you can afford both your current mortgage and a construction loan. Fortunately, if you have equity in your current home, that may count as your down payment.
This is another reason that it’s a really good idea to work with a local lender such as Honor Credit Union, which can help you think through all the details.
“Although we do have debt-to-income parameters, we also have flexibility and wiggle room,” Remynse said. “We like to hear your story.”
Here are four more things to know about construction loans through Honor Credit Union:
- Even if you’re building a home for the first time, you can have peace of mind that the professionals at Honor Credit Union do this every day. Honor’s servicing team for construction loans is good at what they do, and they’ve built positive, long-term relationships with builders and subcontractors in your community. “The bigger builders have preferred lenders and we’re on those lists,” Remynse said. “They know us. We know them.”
- Price overruns and construction delays sometimes happen in home building. That’s why Honor Credit Union looks out for you by adding 5% of the contract price to your loan and holding that money in escrow just in case there’s a spike in the price of lumber or another building material – or in case you decide later that you really want a particular upgrade or two.
- Rates on home financing through Honor Credit Union are very competitive. Once your new home is built, your construction loan will transition seamlessly into a regular mortgage with a 5.5-year balloon rate that’s amortized over 30 years. That means that your first 66 monthly payments are locked at an interest rate that tends to be lower than a conventional 30-year fixed rate. And you can refinance at any time to take advantage of even lower rates when they occur.
- Not ready to build just yet but have your eye on a piece of land? Honor Credit Union offers vacant land loans on three different terms all amortized over 30 years. Both 3-year and 5-year balloon rates are perfect if you plan to start building in the short term, while a 15-year fixed rate is ideal for hunting land or other recreational property.
How To Get Started
If you find an existing home that you love – or a new build that’s just about done and ready for move in – Honor Credit Union has a mortgage option that’s right for you. And if you want to build your home from scratch, a construction loan through Honor Credit Union is the way to go.
You’ll get competitive rates and flexible terms to go along with personalized service from local experts. Honor Credit Union can even connect you to trusted builders in your area if you’re not sure who to hire.
“I loved my new build,” Remynse said. “I have five children, and my house was my sixth.
“Instead of getting the house that someone else made, you’re getting the house that you designed. That’s the appeal of a construction project.”
Spring construction season is here. Make your dream home a part of it by calling Honor Credit Union today!
Insured by NCUA. Equal Housing Opportunity.
More To Explore
Your Guide To Short-Term Home Mortgage Loans
The most common term for a home loan is 30 years, but a short-term mortgage might be worth looking into
Should You Build Or Buy a House? Consider These Things
We’ve outlined the essential pros and cons to consider before purchasing, or building your new home so you can decide
5 Questions About Home Equity Answered
What’s the difference between a home equity loan and line of credit? Honor Credit Union has answers to common home
