7 Things to Think About Before You Get a Construction Loan

Thursday, May 31, 2018

Sunshine on the roof top of a house.

Building a custom home is exciting! You can get all the details just right for you and your family. But before you jump in, be sure you think about these seven things. 

Decide How Custom You Want Your Home

When it comes to building a custom home there are different levels of customization and what you choose will affect your budget. Typically, you'll be able to choose between three options:

  1. Completely Custom: With a completely custom home, you can dictate everything from the size to the type of countertops you have—the world is your oyster! This is also the most expensive option. 
  2. Spec: A spec home is one that a builder has already started working on in an existing neighborhood. The company is speculating that they'll be able to sell the home based on the location and current market conditions. How much of the home you can customize depends on how early in the process you buy it. This option can vary in price. 
  3. Tract/Production Homes: When you see a builder building an entirely new neighborhood, that's a tract or production home. Typically there will be several layout options for you to choose from and you'll have a limited ability to customize things like cabinets and finishes. This is usually the least expensive option. 

Get the Size Right

Once you start customizing your home, it's going to be tempting to add on another guest room, expand the laundry area, or put in another bathroom. You need to have a good idea of how much space you actually need (and want) before you get started. Otherwise, you'll end up with a bigger mortgage to pay for that extra bathroom that you never use. 

Know What's a Need-to-Have in Build and a Nice-to-Have Later

All the little upgrades can really add up when you're building, especially if you're going with a completely custom home. Make a list of all the things you want to see in a home and note which ones are easy to add later and which really need to be a part of the original build. For example, it's not a huge project to add a deck onto the back of the house later, but it might be a lot more difficult to put in a kitchen island with a sink or a pot filler over the stove. 

Interview Your Builders

No matter what kind of house you decide to build, you should plan to work very closely with your builders. Some homebuyers even make a point of going out to the construction site every day just to keep an eye on things. So, it's important to know what to look for in a builder so that you can choose the right one. 

If you're going with a completely custom home, you'll also need to work with an architect. When you choose a builder, they might be able to help you find an architect who they've worked with before. 

Think About Resale

Even if you're planning on staying in your home forever, you should still think about whether or not the home would sell. Things happen and you might find out your job got transferred suddenly or you have to move to take care of an aging family member. 

Think about how your home fits into the neighborhood and general area. If it's much bigger and most expensive, it may be harder to sell down the road. 

Think About the Finishing Touches

When you buy an existing home there are a lot of things that the seller will probably leave, like window treatments, major kitchen appliances, and even ceiling fans. But when you build a home, you're responsible for all of that. A lot of home improvement stores will offer package deals on things like big appliances. So, you can get a discount when you buy your fridge, stove, dishwasher, and microwave together. Just make sure you do your research before you get started so you can factor that into your budget. 

Look for the Right Lender

The right lender can make a big difference. When it comes to financing, you should make sure you have a lender who can offer low rates and has experience with construction loans and regular mortgages. That way they can help walk you through the process when it's time to convert to a permanent mortgage. 

APPLY FOR A CONSTRUCTION LOAN