Funding the Build of a New Home

June 6,2024: Building a new home is not as simple as buying the lot in a desirable location with a pretty view. Working with an experienced real estate agent who specializes in new home construction can make your new home dreams become a reality. 

The real estate agent can help you combine the lot purchase and the new home construction together. Prospective home buyers may be unaware whether their lots require well or septic or municipal water and sewer, whether there’s a natural gas line to the property or if it needs LP; some subdivisions don’t have high-speed Internet access; some builders may have poor reputations; various cities, villages and townships have different tax bases and unique zoning requirements. There are many different factors that can affect the cost of building a new home.

A realtor who works with new construction and home and land sales is able to help you navigate through the process.

Similar to working with a real estate agent with home building experience, not all lenders are the same when it comes to construction loans. An experienced construction lender is a partner in the home building process and will be involved for up to a year if that’s how long it takes the builder to complete the construction. 

The lending partner must have in-depth knowledge of building contracts, specifications and cost breakdowns, and essentially how the entire construction process works from start to finish. Cost overruns are quite common, but experienced construction lenders can advise borrowers about reserve requirements and help determine a realisticconstruction budget. They’re also familiar with local home builders and can offer guidance in making the right choice.

The lender wants to make sure what the customer is expecting to be built is actually getting built, and therefore, the lender is involved with the construction process from start to finish. An experienced construction lender can also provide an upfront explanation of the funding process through each stage of the construction and provide clear communication to both the customer and the builder at each stage.

Home construction is a complicated business with many parties involved. Each party plays an important role in the overall process and the timing of the project’s completion. Consumers can and should meet regularly with the builder, architect, and kitchen and bath designers. To stay within their budget, consumers must pay attention to all details to ensure that the construction cost breakdown approved by the lender matches the final product. All parties should stay in contact throughout the process to help make this happens.

The Consumer should also be aware of potential delays due to factors beyond the consumer’s, builder’s or lender’s control, that could delay completion of the project. 

Finally, It’s vital to get qualified by a construction lender for a loan amount you can afford and review with the loan officer all the costs, payment terms and what documentation will be need for the approval before you consider building a home.

Get educated on the terms, loan requirements and construction process so you know what to expect.