Before the architect’s sketch, before you walk the gorgeous lot — in short, before you START planning your dream home — you should first plan your financing. Post-COVID era construction takes strategic analysis to net the strongest R.O.I.
1. Construction Loan Options
You’ll want to analyze the difference in cost and convenience between types of construction loans, as there is not a one-size-fits-all.
- A “single close” construction-to-permanent loan is convenient because it finances the cost of land, construction, and then converts to a permanent loan with a single closing cost, but tends to have a higher interest rate and/or possibly an adjustable rate.
- A “double close” loan finances construction but requires a second closing for a permanent loan upon completion. While there maybe twice the closing costs, this is a strategic financing option where you can often get an final mortgage with more a favorable rate and term.
- Builder-financing may be available, but tends to be limited with potential of carry fees or above market pricing.
2. How Long Will New Construction Take?
Given the current state of supply chain slow-downs, labor shortages, and increased building demand, it’s wise to factor in a few months of delay.
The U.S. Census Bureau’s most recent data from the Survey of Construction estimates approximately 14.3 months for custom-built homes and 6.7 months for build-for-sale homes.
3. Should You Build – or Remodel?
Are you sure you want to build a new home instead of remodeling something already on the market that has “good bones?” Renovating an existing home is likely to be faster, and may be easier to strategically finance with a reduced down payment or a Freddie Mac HomeStyle loan.
The National Association of Home Builders (NAHB) estimates that the median construction cost of a new home is $449,000 – which is $34,000 more than the median cost to buy an existing home at $414,200 (US Census Bureau.)
4. Long-Term Lock Loans
In many of these scenarios, a long-term mortgage lock may be your best bet because these loans lock in your rate for up to 12 months and include a “float down” lower rate at close if rates drop.
Get ready to build your dream home by working with a strategic lending partner who will help you explore and navigate your options for a smart-money build.