When considering building your Louisville dream home, one of the first questions that comes up is,
“How do we get the money to build?”
Most people need to borrow a substantial amount of money in order to build their dream home. Where and how the money is borrowed will determine if you pay a reasonable or an excessive amount for your new home.
Get a Head Start
Before getting a loan you will need to know how much money it will take to build your dream home.
If you have a set of house plans then a Louisville builder can give you an estimate for construction. This meeting with the builder is key because it can help determine if there are any design modifications that need to be made to stay within your desired budget.
Let’s say the total for your lot and the house is valued at $300,000 by the lender for your long-term mortgage, assuming the land is valued at $60,000, you will need to borrow $240,000 for the building costs.
(Editor’s Note: It’s common for the land to account for roughly 20% of the total cost.)
This means you will probably need to obtain a construction loan. A construction loan is a short-term loan which is used to pay for home construction throughout the building process. When the construction of the house is complete, the construction loan is paid in full, typically with the funds from your long-term mortgage.
Construction loans are most often given to builders and developers. To obtain a personal construction loan, it is best to request it at the same time you arrange your long-term mortgage.
Requesting both loans at the same time will make you a more desirable customer for the construction loan since you will be paying the institution interest for many years to come through your long-term mortgage. You might also find that you will be offered a lower interest rate for your construction loan when paired with the mortgage versus requesting a construction loan by itself.
Before requesting home financing gather the following items:
- The home plans or blueprints for your house including the specifications
- High quality images of the prospective home, which help to eliminate errors
- Your building permit from the local housing authority
- A list of the contractors and sub-contractors who will be responsible for building your home. If a general contractor is being used, his name will be sufficient.
- A written and signed contract between you and the contractor which specifies a time frame for the work and how much it will cost
- Waivers of Lien signed by your contractor
- Proof of liability insurance protecting in case of theft, fire or other damage to the building and site throughout construction
- Personal finance statements and records
Where to Get the Loan for Your Dream Home
The three primary sources of mortgage loans and construction loans for Louisville dream homes are:
- savings and loan associations
- mortgage bankers
Research carefully when selecting a source for your loan. You will spend thousands of dollars on interest over the years of your loan so make sure you obtain the lowest interest rate possible.
Compare the interest rates of multiple institutions before selecting your lender.
As you make plans and search for a lending institution, keep in mind that this is one of the biggest financial decisions you will ever make so be thorough and do your research.
» Learn more on this topic with “How to Finance Louisville New Construction”