Navigating Construction Loans & Inspections

For many years now, owning a home is the pinnacle of the American Dream. For many people, this means buying a new or used home on the market. However, there are those who take it a step further. Instead of buying a home that’s already made, they wish to construct the home from the ground up, truly making their dream a reality. If your dream is to build your home, then it pays to do a little research to see exactly what you’re getting yourself into.

For starters, financing for new construction is slightly different from a traditional mortgage. There are two different types of financing options when it comes to building a new home. The first one is called construction to permanent loans. In layman’s terms, this loan is two loans in one. The money needed for the construction and the mortgage itself. Once the home is built, the construction costs will be added into the mortgage and the homeowner pays it off as normal. During the construction process, the homeowner will be responsible for paying interest on the construction’s costs. Keep in mind that the interest in variable during this time and can increase or decrease your costs. Usually a 20% down payment is required to secure these types of loans. The second type of financing is a standalone construction loan which is only used to build the home. Once the home is complete, the homeowner will have to secure an additional loan for the home and construction costs. However, due to being two separate loans, the potential buyer would be required to go through two different loan applications and fees. This will can further delay your project and spread your budget thin.

Regardless of what type of financing you end up choosing, once the house is completed, you’ll want to have a third-party home inspection. While it might seem counterintuitive, it’s actually a really good idea. A third party inspection will ensure that your mortgage is reflecting accurately the value of the market. It’ll make sure that there are no structural issues with your newly built home and that everything is up to compliance. When choosing a home inspector, it’s critical that you check to make sure they’re a certified home inspector. There are many different crediting associations such as the American Society of Home Inspectors and the International Association of Certified Home Inspectors. Knowing that your inspector has been certified to do this type of work will only add to your peace of mind.

Navigating building your first home can be an arduous process. However, it doesn’t have to be. It always pays off to do some homework on which type of loan is right for you before you begin your construction. Not everyone’s situation is going to be the same. Partnering with your bank and seeing what fits best for you is always a good idea. Once you have your home built, always follow up with an inspection to make sure you are getting what you paid for.

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