If you’re building a custom home, you can get a construction-to-permanent loan that turns into a standard, 15, 20, or 30-year fixed-rate mortgage. If you only need short-term financing, you can get a standalone construction loan. To get approved, you must have building plans ready to go, which is where we come in.
We can help with creating your own custom home from scratch, review custom plans, or tweak base plans from our portfolio so they match your vision. We’ll give you detailed specifications and building costs, which you can give to the lender for approval. The loan finances construction but doesn’t cover overruns, so we’ll work to stay on budget. During construction, you’ll make interest-only payments to the lender, and you can factor that into the total budget.
To get started planning your dream house with Blythe Custom Homes, go to our website.
Can You Get a Mortgage to Build a Custom Home?
Even though the house isn’t built yet, you can get a mortgage for a custom home. Before the loan becomes a traditional mortgage, it finances construction.
Construction-to-Permanent Loan
Construction-to-permanent loans are just what they sound like: construction loans that turn into traditional mortgages once homes are built.
The first phase is financing construction. You may have to get lender approval for the cost of materials or permits. We can quickly develop building and specification costs with clients early into our process, giving you and the lender a clear idea of the cost when you apply.
Construction financing lasts about a year, though bigger custom homes might get more time. During construction, you’ll make interest-only payments. Then, when the home is built and the loan converts into a traditional mortgage, you’ll start paying the principal and interest.
While construction-to-permanent loans may go towards purchasing the lot as well, you can also get a separate lot loan.
Standalone Construction Loan
Home buyers can also get standalone construction loans. These loans are short-term, lasting about a year, and only finance the building phase. At the end of construction, you would have to pay off the loan or apply for a traditional mortgage.
Factoring Loan Payments into Budgets for Custom-Built Homes
While financing your custom build alleviates some financial stress, you still need to make interest-only payments during construction. This might affect your desired spending, which we’ll consider.
You can voice any concerns during budget conversations. You can set a target budget, and we can make designated allowances. Make as many pre-construction decisions as possible, but give yourself room to choose specific finishes you’re unsure about later on.
As we get further into construction and you’ve been making your interest-only payments to your lender, we can revisit the budget and allowances. At this point, we can use the allowances for big-ticket items, like the quartz countertops you want throughout your kitchen and prep areas, or not.
We’ll make sure you’re comfortable with the agreed-upon target budget before we finalize building plans. We can talk about any anticipated construction expenses, including the loan payments you’ll make throughout, since that also factors into the total cost.
What to Know About Getting Mortgages for Custom-Built Homes
Mortgages for already-built homes are complicated enough, but there’s more to worry about with loans for new construction.
Giving Big Down Payments
Keep in mind that with any new construction loans, down payments are typically around 20% of the total cost. That’s because there’s nothing else for the bank to use as collateral or take if you default since the house isn’t built yet.
Custom homes with unique features or expensive materials need more financing, so loan down payments might be bigger.
Getting Fixed Interest Rates
Construction-to-permanent loans let you lock in a fixed interest rate that stays the same when the loan turns into a 15, 20, or 30-year mortgage, benefiting you in the long run.
Combining Loans Limits Closing Costs
Construction-to-permanent loans limit the closing costs you have to pay to your lender. If you do not combine loans like this, you may have to pay two sets of closing costs.
Loans Don’t Cover Overruns
Construction loans don’t pay extra if your project goes over budget. We make staying on budget a top priority. We give detailed building costs, confirm target budgets, make allowances, and work to find solutions to problems like weather delays.
Why You Need Builders Before Getting a Mortgage for Your Custom-Built Home
You’ll need to give information about the project’s cost, timeline, budget, and building plans to get your loan. When you greenlight layouts, we can prepare builder-approved and permit-ready blueprints for lenders.
While some clients want fully custom homes, others customize our base floor plans. Tweaking layouts, adding bedrooms, or increasing kitchens can make pre-designed homes perfect for you and your family.
While you won’t need permits to get approved for a construction-to-permanent loan, you will need them to get any funds to pay for building costs. We can work on getting the permits and zoning approval that you need to break ground as soon as possible after loan approval.
During construction, we’ll communicate about any changes with materials or timelines that concern the lender. Construction loans are paid in installments according to the building plan. If we run into problems because of supply chain issues, weather, or other matters out of our control, we can immediately update you so you can inform your lender.
Once you get your loan, you’ll be on a time crunch. Standalone construction loans only last about a year. Even if you get a construction-to-permanent loan, the construction financing phase doesn’t last forever. You need a solid plan in place and ready to go when you get financing, so don’t wait to get started on your custom home.
Build Your Custom Home with Us
Start envisioning your new house with Blythe Custom Homes, and go to our website today.
