Thinking about buying your very first home? You might think you can’t afford very much for your first home, and will have to get a “beater” you’ll have to fix up during the next 12 years to make decent. What if we told you your first home could be a new home?
This blog will help you learn what are the requirements for a construction loan to make your new home one built just for you.
What is a new construction loan?
A new construction loan is designed for you to afford (you guessed it) the construction of a new home. Generally, these loans involve a builder or developer, usually of a specific neighborhood or community, and picking a model of a home to be built – just for you. While a lot of the options will be cut and dry when selecting your model, there are also a good bit of customization. You can select through flooring, cabinetry and even kitchen counter material. You just might not be able to add that secret passageway behind a bookshelf to your man cave you’ve always dreamed of (unless they surprisingly have that as an option in their models 🤷🏽). Though if you’re looking to have a completely customized home built from scratch, you’ll want to consider a Construction-to-Permanent financing option.
Save your interest rate
One other special component of a new construction loan is a rate-lock option. Building a home takes a bit of time; like, months. Rates can fluctuate on a daily basis, so a rate-lock will help you ensure the rate when you signed to build is the rate you’ll have when the home is done and you move in. And lucky for you: Movement offers rate-lock options for up to 360 days!
What are first time home builder programs?
Both the Fannie Mae HomeReady and the Freddie Mac Home Possible Advantage are great options for first-time homebuyers looking to build a new construction home. FHA and Conventional loans make great new construction options for you, as well. If you’re a veteran, you may qualify for a VA loan, even as a first-time homebuyer. And if you’re doing well for yourself and in the market for a pricier home, a jumbo, or even condo loan, may suit you in your new construction endeavors.
What are the requirements for a construction loan?
A lot of requirements will depend on which loan product you go with and works best. An FHA loan, for example, will require a minimum of a 3.5% down payment, and an absolute minimum of a 580 credit score. You will also want to make sure your credit is up to par, and that you’ve established a lender and a builder. Outside of the specific product’s requirements, you can expect these steps:
- Get pre-approved
- Execute your contract with a builder
- Visit the builder’s design center for changes or upgrades to the property
- Provide updated contract, with new pricing, to your lender
- Loan officer and processor will reach out for up-to-date documentation if construction time exceeds 90 days
- Appraisal will be ordered and all loan conditions will be sent back to the underwriter
- Start settling on the final loan approval
- Final inspection is ordered and lender provides you with initial closing disclosure
- Closing day
So I can get one as my first home?
Absolutely – as long as you qualify! If you’re all about that fresh paint smell and being in a room no one else has, a new construction home can be a great, obtainable option for you. One of the big caveats, however, is that you’ll need to make sure you have secured housing while your house is being built. As a new build can take at least a couple months, be sure you’re comfortable figuring out interim housing in the meantime.
What do I need to do to buy a new construction home?
One of our best suggestions is to start a conversation with a local loan officer. They’ll be able to start you off with knowing what you can afford. That way, you’ll have a great idea of your best loan option and what kind of homes you can start having built for you. They may even be able to point you to some great, local builders they already work with to get you started on the next step.
Like cars, people often think their first one has to be something very cheap, that probably needs a lot of work done (very routinely, even). New construction homes make for a great first-time option if you’re ready to have a brand new place to call home. Ready to see what your options can look like? Contact a loan officer near you.