Loans to Build a Home

Many are swept away by the dazzling houses they see families inhabit on Instagram and have been dreaming of owning their own custom home with special features of their own. From granite countertops and farmhouse wooden floors to marble sink basins and natural textures, families are ecstatic when they decide to build a home for the first time. However, due to the complex finance options available for homeowners, they are unsure how to proceed, wondering what kind of loan they need to secure.

At Morgan Taylor Homes, we are a home-builder for everyone and are glad to show you loans to build a house. No matter how difficult it may seem, we are here to walk you through the different mortgage types on the market so you can purchase the picture-perfect home in your head.

What are construction loans?

These are a broad category of loans that homeowners will utilize to cover the costs when they build a house, one that captures their creative self. Covering only the cost of construction, these are short-term loans that must be paid off quickly. In most cases, homeowners will need to apply for a fixed rate or adjustable rate mortgage after finishing their loan.

Depending upon the kind of construction loan, you will have to seek another mortgage on top of your first loan or automatically receive the benefits of a converted mortgage. Your individual housing situation is always accounted for by these specific construction loans, whether you’re building a brand new home or renovating an older one.

Why are they harder to obtain?

For excited home dreamers, the process of obtaining a construction loan can be extremely frustrating and challenging. They are discouraged when they discover it would be a lot easier to borrow money from a traditional mortgage than create their custom home from scratch, requiring a higher credit score.

Risk is the primary reason why lenders are less keen on supporting home building projects no matter how safe of a financial asset they may seem. To put down hundreds of thousands of dollars toward a non-existing premier custom home creates less room for guarantees.

Although construction loans are a challenging business, the process is possible when our excellent sales agents partner with you to present the best financing options.

Construction-To-Permanent vs. Construction-Only

Both primary construction loans types are options future premier custom homeowners will consider when choosing the finance option that is right for them.

Permanent

Construction-To-Permanent Loans are construction loans that transform into a permanent mortgage after construction is completed, meaning you will not have to pay closing fees twice. This option is cheaper in terms of additional costs, although borrowers will have to make interest-only payments, which means they must be careful to research the best possible interest rates.

Construction-To

On the other hand, Construction-Only Loans stay as loans that cover only construction costs without becoming mortgages at the end of building. Again, since there are two financial deals occurring with your lender, you will have to pay the closing fees twice rather than once for Construction-To-Permanent Loans.

There is immense pressure placed upon borrowers of Construction-Only loans in the case of financial hardship that will totally disrupt the home buying process. For example, if you signed legal documents to participate in this loan type but lost your job halfway through, you would not be able to move into your new home if you could not refinance in time.

Other kinds of construction loans

Renovation Loans

For those looking to renovate an existing home and turn it into their gorgeous dream home, renovation loans are perfect options. In this loan type, the home’s price as well as the renovation costs are paid in the same loan amount rather than through two separate transactions. Similar to Construction-To-Permanent Loans, these will subtract one set of closing fees from the overall cost, leaving more money in your pocket for special features in your premier custom home.

Another popular option, cash-out refinances, takes advantage of your current home loan and maximizes its benefits for your renovation capital. The idea is to acquire a higher mortgage than your preexisting one and split the difference as money to spend for that thousand dollar chandelier you have always wanted and other necessities. This would increase your personal finance options for decorating and aestheticizing your dream home from the kitchen to the bedrooms.

Owner-Builder Loan

These kinds of loans are designed specifically for licensed builders in mind who are tackling the contracting of their own dream home. Since the moving parts of your property’s construction include leading painters, carpenters and other tradesmen, lenders want someone they can entrust the position to.

In most cases, excited home buyers do not know how to contract their own homes, but for those who do they can receive additional benefits reflected in their construction loan.

End Loan

Known as the mortgage of the premier custom home after its construction, this loan is paid on after a traditional construction loan has been finished. Remember, these only apply with Construction-To Loans since permanent ones automatically convert into regular home loans on their own.

The mortgage application is the same for End Loans as regular homes, making the process much easier.

Find a Tailored Home Loan That’s Right for You

In order to construct the home you have always been dreaming of, you need to obtain a construction loan. However, the subtleties of your custom home building situation change your overall loan dynamics and what you are eligible for, making for complex finance options at your disposal.

We at Morgan Taylor Homes not only specialize in Tailoring your desired home to fit your imaginative needs, but also your home loan. The gorgeous homes you’ve been pinning and liking for years can become your reality when you acquire the construction loan that is right for you.

Join us in setting the new standard for custom homes throughout Arizona that everyone is dying to have. Reach out to our office by phone at 480.626.1555 so we can craft your new home together.