Home Building and Remodeling: Finding the Right Lender

  • By Jeremy Thompson
  • 15 Mar, 2017
One of the more frustrating and confusing tasks when financing the building of your custom home or the remodel of an existing home is finding the right lender. Do you go with a broker, or a credit union, or a small hometown bank, or a large banking institution? How do you know they will give […] The post Home Building and Remodeling: Finding the Right Lender appeared first on J. Thompson Builders.
One of the more frustrating and confusing tasks when financing the building of your custom home or the remodel of an existing home is finding the right lender. Do you go with a broker, or a credit union, or a small hometown bank, or a large banking institution? How do you know they will give you the best interest rate? These are some of the questions homeowners struggle with in choosing the right lender. It’s not a one size fits all situation. But we can offer you some advice to guide you in choosing a lender.

Financing Options

Let’s start by simply explaining the different types of loan you may need dependent on your situation.
If you are building a new custom home you will get a construction loan. While a conventional home loan usually lasts for 30 years at a fixed rate, a construction loan is written to last only the length it takes to build the home, and you may only pay the interest while you are building. After the home is built, you will need to get a conventional mortgage loan and pay off the construction loan.
If you are remodeling, you may get a home equity loan (also called a second mortgage), a home equity line of credit (revolving credit similar to a credit card), a cash-out refinance (refinancing for a larger amount by using the equity in your home), or some people opt to get a personal loan or just use a credit card.

Key Questions to Ask Lenders

  1. What is your interest rate?
  2. What fees do you charge (closing costs, etc)?
  3. Will I need PMI (Private Mortgage Insurance) with your product?
  4. How much do I need for a down payment with your products?
  5. How do I get in touch with you throughout the process? Choose a lender who is accessible, and won’t largely ignore you if you have questions.

Tips for Finding the Right Lender

Bottom Line Tip: Choose whoever will give you with the best rate and charge you the lowest fees.
  1. Work on improving your credit score, if necessary. Your credit score plays a large role in determining if you can get financing, and the rate you ultimately receive.
  2. Get lender recommendations from a wide range of individuals including someone who has recently acquired a mortgage, and your realtor, lawyer, accountant, financial advisor, or all of the above. The latter group of individuals mentioned are all dealing with mortgage lenders regularly.
  3. Get at least four loan estimates: one each from a local bank, a local mortgage broker, a credit union and an internet banker (e.g. Quicken Loans). There are lots of deals online you can investigate and research, but be careful to read the fine print.
  4. Compare lenders’ fees and interest rates. Different lenders charge different fees. Always read the fine print to understand what fees the lender is charging you. Remember interest rates vary daily. It’s best to get estimates all within one day.
  5. When dealing with a local lender, ask if they have any special in-house products. Some banks, especially local, will offer customers special types of loan (e.g. a loan with a lower down payment amount for lower income individuals).
  6. Lock it in! Once you’ve found your lender, ask them to lock in the rate if you want to guarantee you get the rate quoted.

For more advice on building or remodeling a home — including advice on all the resources you need to do so — read more on our blog .

J. Thompson Builders Blog

By 7052540976 15 Nov, 2017
Some of these considerations may not be in the forefront of your mind, but there is a long list of aspects you need to consider when building a new home. These should help to get you started thinking about some of the most important pieces of the home building process.
By 7052540976 15 Oct, 2017
This home is being built with our client’s specific wants and needs in mind. The homeowner
requested a single family home with a modern contemporary house design. Previously, he lived
in a townhome and desired a more private, spacious residence. A main floor living with a large
space to entertain and big volume ceilings were a must on the client’s list.

The client decided building as opposed to finding a pre-existing home was a better solution for
him because he wants something specific to his needs. He already had the perfect location in
mind and it was time for him to own his dream home.

The area is ideal for this client because it allows him to live in close proximity to his hobbies and
interests and it also allows him the ability to walk to nearby restaurants or bike to the
surrounding shops. This homeowner will be close to everything. He truly loves the location!
The design concept picked is pictured below. In sticking with a contemporary influence, the
design has clean, simple lines that will result in an extraordinary modern home. We combined
elements of residential and commercial materials and design to bring our client’s unique requests to life.
By 7052540976 15 Sep, 2017

You decide that you are ready to build a custom home for you and your family. Now it is time to figure out how to finance your dreams!

Let’s start with the basics. As with any loan process, do your research. Talk to several mortgage companies that specialize or have a strong understanding/history of working with construction loans. Ask questions and voice your concerns. Companies of course want your business, but they also want to make sure they are a good fit for you and what you are wanting to accomplish. Reviews and referrals are strongly regarded these days. They want to make sure you have the best experience possible.

There are several main differences between a construction loan and a regular existing home loan. An individual construction loan may require a longer credit history  or a higher credit score as well as more money down and along the way. It is more of a process, but it is most certainly worth it. With the right builder, the more involved process becomes a piece of cake; but, that is an article for another time.

Home loans can have a 30 year term whereas a construction loan typically has a max of 1 year. “The rates on this type of loan are higher than rates on permanent mortgage loans. To gain approval, the lender will need to see a construction timetable, detailed plans and a realistic budget, sometimes called the “story” behind the loan,” as reported by  bankrate . While your home is being built, it is typical to make interest-only payments. 

If you are thinking, “I don’t have enough money to pay off a newly built home in 1 year!” Don’t panic.

A popular option is the construction-to- permanent financing sometimes called “one-time close,” a “single close,” or an "all-in-one" loan. Upon completion of construction, the remaining loan balance is converted into a permanent mortgage with terms up to 30 years. Like most loans, “the rate and other terms of the permanent mortgage are set up-front when the entire loan package is closed” according to the  National Association of Home Builders .  Construction/permanent loans are offered by many different lenders, including banks and mortgage companies and are a great option for those of us wanting to finance their home purchase over an extended period of time.

Another option is a stand-alone construction loan. This type of loan can be beneficial if you currently own your home and want a smaller down payment option.   Read more about stand alone construction loans.

There are many different loan options. What makes sense for one person doesn’t make sense for everyone. Make sure you find the right product for you and your particular project. If you want to talk over some options, contact us! We would love to hear your ideas and figure out how we can build your dream home.

View our work , read our reviews on Houzz.com , and visit our Facebook page to get inspired!
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