Financing

Construction loans provide the financing for the construction of your new home. Most financial institutions require you to take out a construction loan rather than a conventional mortgage. The construction loan is often blended into a conventional mortgage once the house is finished and in many cases without any additional fees. Under a construction loan, a builder receives "draws" from the bank as various phases of the construction are completed. The final draw comes when the home is completed. The number of draws depends on the bank and how much up front money you put toward the construction of your new home. Most banks charge a set fee for each draw. In many cases banks will provide separate lot loans or one loan for both the lot and home. Additionally, most banks will provide you with an interest reserve account and a contingency account. The interest reserve account is set up to make your payments on the outstanding balance of the construction and land loan while you are in the process of designing and building your new home. You will only pay interest on the outstanding balance of the loan. If you don’t use the entire interest reserve account you don’t pay any additional penalties or fees. The contingency account is set up in the event that you want to change, add or delete something that causes an additional expense to the building of your new home. As an example, you decide to add a pool and landscape to your construction loan. If you didn’t have the contingency account for this additional expense, you would have to pay for it out of your pocket. The contingency account will add these additional costs into your construction loan.

A Conventional loan is one you will likely have once your new home is finished. Conventional mortgages typically run 15 or 30 years, with the 15-year mortgage usually carrying a slightly lower interest rate. Most financial institutions will allow you to buy down your interest rate to a lower rate by paying points up front. Each point costs one percent of the amount you are mortgaging. For instance, a point on a $500,000 mortgage would cost you an extra $5,000 as part of your mortgage application fees. Typically, each point that you purchase reduces your interest rate by a quarter of a percent. Conventional wisdom is that buying points is a good investment if you plan on owning your home five or more years. Each point can save you thousands of dollars in interest over the life of your mortgage. Points maybe deductible in many instances on your federal income tax return for the year in which you take out your mortgage. You must check with your financial advisor or CPA for your specific situation.

COMMON METHODS FOR FINANCING YOUR CUSTOM HOME
There are many ways to structure the financing of your new custom home:

1. The builder may collect a 10-20% construction deposit from you, and then he will pay for the construction of the home. When the construction is completed, you, the buyer, will obtain a permanent loan on the home. The 10-20% deposit will be credited towards the closing of the permanent loan. Please check with us for the details.
2. Most of the time, especially for custom homes, the builder will require you to take out a construction loan to pay the costs of building the home, as they are incurred. In this case, there are several ways to obtain financing:
1. Construction loan only - This is where you, the buyer, obtain a loan for building the house only. Once the construction is complete, the buyer will have to obtain permanent financing
2. Construction-to-Permanent loan, otherwise known as a "One-Time Closing" or "All-in-One Loan" - This allows you, the buyer, to close both loans at the same time. Since the loan automatically converts to permanent financing at the end of the construction period, you will not have to re-qualify. Depending upon your situation either loan program may be desirable for you.

Sanctuary Builder has sought experienced and knowledgeable mortgage companies and loan officers who can offer our homebuyers’ guidance in obtaining a loan. We have forged professional relationships with our financing partners and they uphold our passion for providing exceptional customer service to our homebuyers.  They will educate you on the various loans available and will consult with you on the most sensible and advantageous loan for your situation.  Call Sanctuary Builder today at 480-888-1705 to be connected with a seasoned loan officer who will assist with financing your custom home.