Home Building Loan Process
Know what to expect before you finance a new construction home. A lot of patience is required to navigate the process of finding the right builder, obtaining a construction loan, and having your home built. Here is a step-by-step guide to financing new construction, as well as answers to a few commonly asked questions about new construction loans.
Find a great agent.
This step may not seem necessary when financing new construction, but working with an agent who isn’t affiliated with the builder gives you a layer of security and a set of expert eyes to avoid contract headaches later. Make sure you find someone with experience negotiating new construction deals. You find agents with that kind of experience and read reviews from past clients on Redfin.
Get your credit in order.
As with any home financing, the next step is getting an accurate look at your credit score. It’s wise to get checked out by all three credit bureaus (Equifax, Experian, and Trans Union), and to secure your FICO score from at least one of them.
Collect your financial documents.
In addition to getting your credit and FICO score, make sure you have documentation of your daily expenses and financial history, including annual income, total debt, investments and assets and 401k funds. For a detailed list of all the materials you’ll need, visit the Redfin Home Buying Guide.
Once you have documents that illustrate your financial standing, it’s time to find out how much you can borrow. Keep in mind that you’ll need financing for both construction costs and your eventual mortgage. Consider rolling your construction loan into your mortgage payments with a construction-to-permanent loan. Many mortgage companies, however, do not offer loans for new construction, so you’ll have to find local banks and credit unions willing to invest in your potential property. For a list of suggested lenders, consult Redfin Open Book.
Now that you know what you can afford, you’re ready to find a builder! Read online reviews, consult their vendors, and check out their previous work in person. Get an idea of construction prices, and if builders provide financing. Narrow your list down to trusted local builders who have a reputation for completing work on time and within budget.
Purchase land (optional).
If you want to build a home outside of a builder’s development, you’ll need to take the additional step of securing a lot of land. Land price factors into your overall pre-approved budget, so think carefully about how the cost of securing land, an architect, and a builder will add up.