If you are planning to purchase a new construction home, there are many differences in applying for a new construction loan as opposed to a traditional mortgage loan. Many mortgage lenders will thoroughly explain the process to you, but it doesn’t hurt to know what to expect before going into it. Consider some of these tips before getting started on finding a mortgage lender for your new construction home.
As with any loan, your credit needs to be in order prior to applying for the loan. Without a good credit score, you won’t be able to even obtain a mortgage loan, much less one with a good interest rate. Once you realize you want to apply for a new construction loan, begin by saving up money and paying down debt. Paying down your debt is the quickest way to getting your credit in order and increasing your credit score. The better your credit score, the lower the interest rate you will receive.
Delays in Construction
With a new construction home comes potential and inevitable delays throughout the building process. While construction is occurring, there are many obstacles the builders have to deal with, such as getting permits from the city, weather delays, and other causes for delays that could significantly impact the original timeline for completion. This delay in the timeline could potentially affect your new construction loan, as these types of loans sometimes have an end of loan date. Be sure you are aware if your loan has an end of loan date and keep tabs on the construction process and speak with your lender frequently for information on whether or not your construction will be complete in time. If it isn’t you could be looking at having to refinance the loan.
With new construction loans, the mortgage lender will contact you a few times throughout the construction process as each phase is coming up. Builders have phases they complete during construction, and they need to draw the money from the lender in order to obtain the materials needed for each construction phase. You or the bank will be responsible for granting the permission for each draw amount, and construction cannot proceed until permission is granted.
As you can see, there are many differences in a traditional mortgage loan for a home and a new construction loan. This shouldn’t deter you from purchasing a new construction home, but rather should provide you with information so you are well prepared for what to expect from this type of loan. If you are interested in obtaining a new construction loan, Highlands Mortgage has the best mortgage lenders that are ready to help you, contact them today!