Some to-be homeowners prefer building their own homes to purchasing one. While both options come with their own set of challenges, building a home offers the chance to develop a custom solution to your housing needs.
You can be in control of the layout, the number of bedrooms and bathrooms, as well as the finishes and fittings. Nothing is left to chance in a custom home as everything is created and installed to your liking.
While this is an excellent choice to pursue, the issue of financing might make you reconsider. Owning property is a capital-intensive investment and not all potential homeowners the money saved away to meet construction costs.
However, it doesn’t have to break the bank as you may expect. In most cases, there are options suited for any financial bracket. It’s only a matter of knowing what goes into financing a custom-built home.
To help you on the subject matter, the experienced and reputable team from Leenan Homes offers an overview on financing a custom home. We’re known for our professional services in remodelling and custom home building in Regina.
The Issue With the Conventional Mortgage
You may know about the details behind applying for a home loan, also known as a mortgage. While you may qualify and get approval for one (thanks to your credit score and a reliable source of income), the conventional mortgage doesn’t apply to the construction of a home.
Why? The reason for this is the issue of risk. In a traditional mortgage setup, the development already exists and serves as security for the loan. Even if the lender defaults, the bank/financial institution is able to recover the costs. The same doesn’t apply to the construction of your dream home.
It’s riskier for the lender to give you funds for your future plans that are not yet set in stone. As such, you will need to apply for specialized funding.
A Construction Loan
Referred to as a self-build loan in other circles, a construction loan is the type of mortgage that suits your custom home needs. It’s a short-term loan, typically between 12 to 18 months, depending on the type of development you intend to put up.
Construction loans are usually rendered at variable rates, this being higher than the typical mortgage loan. It’s due to the higher risk element of the project. And, as you know, banks are averse to risk.
From our experience on the matter, the bank offers a loan where the interest is due during the construction of your home. Once complete, the principal has to be paid.
Most homeowners choose to refinance the construction loan, changing the setup of the loan to the traditional mortgage that most know. The other option is to secure a new loan that will pay off the previous construction loan.
As stated above, the construction loan is considered riskier since you are asking the lender to provide funds for future development. As the one choosing to build the home, it’s your responsibility to show the credibility of your building project. You need to put the lender at ease by providing viable evidence.
For starters, provide well-done and detailed blueprints, drawings, and plans. As an experienced home builder, Leenan Homes provides its clients with a “blue book” containing all details that pertain to the development. It contains all possible construction information that the bank may need.
Also, provide the financial institution with the budget and timeline for construction. Work with reputable companies in the area whose build history is stellar and untarnished. It improves the credibility of your project, Leenan Homes being one of the best choices for this.
By building a good foundation with your lender, you prove that your project is indeed low-risk. If you play your cards right and conduct research on your mortgage options in the market, you may be able to get favourable rates for your construction.
A Down Payment
As a rule of thumb, your lender will request for you to make a 20% down payment for the construction loan. However, depending on the risk of the development, your lender may even request a higher amount.
Our team recommends you make a larger down payment if you can. With a bigger down payment, the amount borrowed will be less, translating to lower interest. Your monthly repayments will then be lower. Depending on the bank, you may also be charged a lower interest rate as you will be viewed as less risky.
However, only make a larger down payment if you are able to meet your other financial obligations.
The Consideration of Land
Do you already own land? If this is not the case, the cost of acquisition needs to be added to the final cost of the loan.
If you are in a position to buy land right away, acquire the land before applying for the construction loan. For the reasons listed in the section above, you will have an easier time paying off the loan in the long run.
Work With a Qualified Builder like Leenan Homes
Turning your dream home into a reality requires several steps for the dream to come to fruition. As described above, you need the finances to meet the cost of purchasing, developing, and furnishing each space.
You will also need to comply with the requirements of local and federal laws on development and construction. Rely on the services of the #1 home construction company in Regina, Leenan Homes.
Our combined experience in building custom homes in the area spans decades. Our team of architects, designers, and real estate professionals provides services that meet the highest standards in the industry. With Leenan Homes, you are guaranteed quality all the way through. This is why we are the premier service provider in Regina and beyond!
Your home is an important investment that will last you and your family many years. As such, you need to work with a team of experienced professionals with industry knowledge and resources.
Contact Leenan Homes to learn more about how we can help create the home of your dreams. In addition, you can check our projects and peruse the homes that we have built-in, out, and around Regina!