How Does a New Home Construction Loan Work?
Custom home builds in Oklahoma City, OK work differently than the purchase of an existing home. When you prefer custom home design in Oklahoma City, OK, it’s important to understand your financing options and what to expect from a new home construction loan. Use the following overview of home construction loans to gain a better understanding of this process.
What is a new home construction loan?
This loan provides the funds you need for custom home builds in Oklahoma City, OK. It is a short-term loan with a higher interest rate than a traditional home loan.
What are the typical terms of a new home construction loan?
The construction loan typically has a one-year term. During those 12 months, the property must be completed.
As the home is built, the lender pays out portions of the funds to cover the progress (unlike lump-sum payments which are provided under traditional mortgage terms). The borrower must pay interest only on the funds distributed up to that date. As the builder requests additional funds, the lender typically sends a representative to the site to confirm progress.
The rate of interest for this type of loan is variable, based on the prime rate. It is usually higher than traditional mortgages, because there is no completed home to act as collateral for the lender. This puts the lender at higher risk, so they charge a higher interest rate.
How can I get a new home construction loan?
If you are choosing custom home design in Oklahoma City, OK and need a construction loan, you will need to present a construction timetable to the lender, along with a budget for the project and detailed plans for completion. To obtain these documents, you must establish a contract with a builder, who will provide the details of the completion of the home which you can present to the lender.
Once the lender has approved your loan, the lender will establish a schedule of fund withdrawal that follows the expected completion of construction phases.
How do I qualify for a new home construction loan?
To secure this type of loan, you will need to complete the previously outlined process, plus qualify for the loan. Since the loan is considered high-risk for the lender, the qualifications are often more stringent than those of other loan types. You’ll typically need good to excellent credit, low debt-to-income ratio, a stable income and a 20 percent down payment for the home. You can work with your custom builder to get a recommendation for a trusted lender to provide your new home construction loan.
For more information on loans to complete your custom home design in Oklahoma City, OK, contact the professionals at Perry House Plans. Our track record of success stretches back to 1959. Serving satisfied homeowners throughout the area for generations, we are your trusted source for custom home builds in Oklahoma City, OK. Reach out to us today for a free consultation. We look forward to becoming your builder partner for life.
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