New Construction Loans: A Guide

Getting a new construction loan is one of the best ideas a person will come up with. Even under construction, a new home is worth more than ninety percent of the already built homes. This means less risk is involved when a person goes shopping for a new construction loan. People already know that everything will work out in their favor, and even the lenders know that. These choices have the added benefit of allowing buyers to pick the length of their term.

What to Know Before Applying

New construction loans are different from regular commercial real estate loans. Because a person doesn’t have an actual property to use as collateral with a new construction loan, these can be trickier to obtain. When taking out a loan for new construction, there are a few key differences people will need to know about upfront.

A person may have to put down 20%-30% of the total project costs for new constructions. Also, some lenders won’t lend on properties located in some geographic regions. The term for most new construction loans is about 12 months, at which point the borrower must typically begin paying back their loan in monthly installments. If the borrower needs more time before beginning repayment, they may need to request an extension from their lender.

Are There any Closing Costs?

Closing costs for new construction loans are typically calculated as a percentage of the loan amount, usually around 1% to 3%. However, closing costs can vary depending on the state and the lender a person is getting their loan with. Most of the costs are paid to the lender and not the builder.

These costs include:

  • Loan origination fees
  • Appraisal fees
  • Home inspection fees
  • Title report fees
  • Recording fees
  • Credit check fees.

Finding Lenders

There are many options for applying for a new construction loan. But what should they consider when weighing their options?

First, they want to ensure that the chosen company is experienced in new construction and loans. This is not something that they want to leave in the hands of an amateur, as this can lead to wasted time and money if not done correctly. Working with a company that understands what they’re doing will help to ensure that the process goes smoothly.

Next, individuals want to make sure that the company they work with is willing and able to help them through the entire process, from start to finish. When it comes to getting a loan on brand-new construction, there may be steps or processes they are unfamiliar with, so it is crucial to have someone guide them through it all.

The overall trends point towards a positive outlook for the construction loan industry. Homebuilding continues to increase globally, and with that comes increased construction loans. Prospective home buyers looking for new construction loans can contact I Fund Cities for more information.

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