Building your dream home is an exciting journey, and also one that comes with many decisions to be made. Among the several important considerations when planning your custom home – from buying land to building a house that fits your vision – is how to secure the best financing option. Navigating construction loans can be especially daunting if you’re building your first home. To help you understand the nuances of new construction financing and get your new home building journey started off right, our experts at Weaver Custom Homes break down key terms, processes and provide answers to common questions.
What Is a Construction Loan?
A construction loan is a type of short-term financing that helps cover the expense of buying land and building a house. Banking institutions offer a variety of types of construction loans, but most new home construction financing options typically cover costs of:
- Land Parcel or Lot
- Contractor Fees
- Labor
- Building Materials
- Building Permits
What’s not covered by construction loans? Designing the aesthetics of your new home. For professional help creating the floor plan and choosing interior and exterior design elements, you’ll either need to secure a personal loan or choose a custom home builder that includes customized design services to clients as part of the process.
Types of House Building Loans
It’s wise to explore all your options for new construction financing. The five main types of construction loans available are:
- Construction-Only Loan – Covers only the construction of the home, typically one year in length, must be paid in full when construction is completed either in cash or by obtaining a traditional mortgage. Allows you to shop for mortgage rates separately but may involve higher interest rates and closing costs.
- Construction-to-Permanent Loan – Finances the construction phase, then converts to a traditional mortgage, borrowers can choose the term length and opt for fixed or variable rates. Requires interest-only payments during construction and only one set of closing costs but can be more expensive overall, so diligent front-end comparison shopping is a must.
- Renovation Loan – Covers the costs of renovation and addition projects in an existing home, include a wide variety of rates and types, are typically paid out to and managed by the homeowner instead of the contractor.
- Owner-Builder Loan – Covers construction and/or mortgage costs for projects in which the homeowner is also the contractor overseeing the project, requiring extensive credentialing to prove the borrower’s expertise.
- End Loan – Another name for the traditional mortgage that kicks in after new-home construction is completed and the construction-only loan is repaid.
How to Get a Construction Loan
Securing new home construction financing is an important part of planning your custom home building timeline. To make sure you’re covered with the right type of construction loan for your needs, follow these steps:
Choose a Builder
Before a lender will approve funds for your dream house, they need to know that you’re working with a trustworthy home builder. In Ohio, Weaver Custom Homes is highly regarded as a reliable company with the expertise to complete new construction projects in compliance with building codes and within projected timelines. Our credentials carry a lot of weight with most financial institutions.
Gather Paperwork and Choose a Lender
Applying for construction financing requires a lot of paperwork. Through our decades of experience with custom-built homes in Ohio, our process has been refined to support our clients at every step, including getting a construction loan. Our relationships with local lenders can make your decision easier, and our transparent payment scheduling will give you peace of mind through all the building phases.
Start the Approval Process
Getting approved for your new construction financing is crucial to moving forward with your project. Pre-approval from your chosen lender ensures you’ll be able to afford all the custom options you’ve carefully included in your plan. This step can take some time but must be completed before we can break ground.
Secure Homeowners Insurance
Most lenders require you to have a homeowners insurance policy in place before approving a construction loan. This may seem odd, as there’s not even an existing house yet – but this type of insurance typically covers builder’s risks, like damage to the construction site from weather or vandalism, so it’s in your best interest.
Frequently Asked Questions
When considering a custom home, many of the people we consult have questions about the costs and specifics of construction loans and other financing options we accept. Below, we’ve answered some of the most common questions to help you plan effectively:
How Much Does it Cost to Build a Custom Home?
The cost of building a custom home varies widely based on factors like size, location and the finishes you choose. Weaver Custom Homes’ expert design consultants take the time to understand your lifestyle and budget to build a home that aligns with your goals. We provide accurate estimates and ensure your sign off at every phase to help you avoid surprises and secure the appropriate construction financing.
What Types of Loans Does Weaver Custom Homes Accept?
We accept most construction loans, providing flexibility to suit your financing needs.
Does Weaver Custom Homes Accept Self-Financing Customers?
Yes, we accept self-financing (cash) customers, offering additional flexibility for those who prefer this option.
What is Weaver Custom Homes’ Process for Scheduling Payments?
Typically, there are about six payment phases during the construction process. These include the initial down payment, foundation, roof, drywall, trim and then the final payment. Our team will work with you to set up a clear and agreed upon payment schedule.
How Long Does the Construction Loan Process Take?
The construction loan process typically takes between 30-90 days, but this can vary depending on the bank, the type of loan you’re applying for, and how quickly you can provide the necessary documentation.
Start Designing Your Dream House with Weaver Custom Homes
Ready to turn your ideas for a beautiful, high-quality custom home to reality? Choosing home builders in Ohio that are experienced and offer transparent communication is key to bringing your vision to life. Weaver Custom Homes’ skilled professionals and design consultants offer personalized guidance to support you at every step of the new construction financing and home building process. Contact us today to schedule a visit to our award-winning Design Center located in downtown Wooster.
