There are two types of homes we get a lot of inquires about financing when it comes to construction. Building a home to live in as your principal residence and building a home to sell for investment purposes.
When building a home to live in we have numerous lenders that will consider financing. Banks, Credit Unions and Private Capital which all have pros and cons when building a home to live in. Banks typically have the lowest interest rate but the most stringent conditions and draw process (access to capital for the build). Credit unions have competitive pricing, similar to the banks and at times more flexible draw process. The bank and credit union process can be fairly similar in terms of approval, documentation requirements, acquisition financing and construction financing and therefore, our role, in this capacity, is to help find the most suitable solution pending your needs and matching it up with the most appropriate lender. Private Capital is the most flexible and aggressive in terms of the amount one can borrow, the type of income required to qualify and has the most flexible draw process. However, the client pays a premium in terms of the interest rate and there is a set up fee. Buying a home to live in, for the most part, allows multiple lenders to offer lending solutions that we help navigate.
When building a home for investment purposes, to immediately list and sell after completion, does not always yield the same interest from lenders to finance. When buildings "spec homes" clients are often looking at financing with private capital, unless they have access to the capital or other properties we can financing to provide them access to a line of credit as one example for the build. Within the private lending space, not all lenders are created equal. The approval process can vary, the interest rates and set up fees can vary and the loan to value and draw process can vary as well. Its equally important when building a spec home to review different lenders terms and options to again, find the most suitable product for your needs.
Two things that done change much from lender to lender are the documentation requirements, (listed below in our checklist) and the budget requirements (also listed below).
Checklist:
-Complete application
-Advise if title is held in personal name or company name
-Have credit bureau pulled
-Detailed Budget
-Address length of time for the build
-Estimate finished value (appraisal will confirm)
-Intent for the property (principal residence versus investment property)
-Who is the builder
Budget:
The budget is one of the most important aspects of the build. Any budget should include land, hard and soft costs:
Land value: Often the lower of the purchase price or appraised value.
Soft Costs: The project expenses that are not incurred during the hands-on construction process.
Hard Costs: The projects expenses that are incurred during the hands-on constructions process, the bricks and mortar.
Sample budget template attached
Regardless if you are buying a home to live in or sell, we can help figure out the most suitable lender for your needs and go through the process of illustrating how the approval process works, how much and when funds will become available for acquisition and construction, how much capital you should have available and then potion approvals and help work with you as the client and lender selected until the home is complete.