The Benefits of Construction to Permanent Financing for Building on Your Own Land
Guest Blog by Joe Dunn, First Heritage Mortgage, a Keel Custom Homes Preferred Lender
As a loan officer and mortgage executive for over 31 years, I’ve seen many clients realize their dream of building a custom home on their own land. One of the most effective ways to finance such a project is through construction to permanent financing. This method not only simplifies the process but also offers a range of benefits that make it an attractive option for prospective homeowners. Right now, with the current market conditions, it’s the perfect time to consider this approach.
There are several different construction loan and construction perm products. Let’s explore why construction to permanent financing is an excellent choice for building a custom home on your own lot.
What is Construction to Permanent Financing?
Construction to permanent financing, often referred to as a construction-to-perm loan, is a type of mortgage that covers the cost of construction and then converts into a permanent mortgage once the home is completed. This type of financing is specifically designed for those who want to custom build their home rather than purchasing an existing property.
Simplified Process
One of the main benefits of construction to permanent financing is the simplified process. Instead of having to secure separate loans for the construction phase and the permanent mortgage, you only need to go through the application and approval process once. This means fewer documents to submit, less paperwork, and a more streamlined experience overall.
Locked-In Interest Rates
Another significant advantage of construction to permanent financing is the ability to lock in your interest rate from the beginning. With traditional construction loans, you might face fluctuating interest rates during the construction phase. However, with construction to permanent loans, you can secure a fixed rate for both the construction and the permanent loan, protecting you from potential rate increases.
Interest-Only Payments During Construction
During the construction phase, you typically only need to make interest-only payments on the loan amount disbursed to date. This can help keep your monthly payments manageable while your custom home is being built. Once the construction is complete and the loan converts to a permanent mortgage, you’ll start making regular principal and interest payments.
Flexibility in Customization
Building on your own lot with an excellent builder like Keel Custom Homes allows for a high degree of customization. Whether you’re dreaming of a modern architectural masterpiece or a cozy traditional home, construction to permanent financing gives you the freedom to design every detail to your liking. From the layout to the finishes, you can create a home that perfectly matches your vision and lifestyle.
Cost Efficiency
Building a custom home on your own land can be more cost-effective than buying an existing home or purchasing a new build in a planned development. By choosing your own lot, you can often find land at a more affordable price, and you have more control over the construction budget. Additionally, with the current market conditions favoring buyers, now is an excellent time to invest in land and start the construction process.
Increased Home Value
A custom-built home often holds its value better than a standard home, especially when it’s tailored to your specific needs and preferences. By using construction to permanent financing to build on your own lot, you’re making an investment that can appreciate over time. This not only enhances your quality of life but also provides potential financial benefits in the long run.
Why Now is the Best Time to Build
The current real estate market presents unique opportunities for buyers. Interest rates are relatively low, making it an ideal time to secure favorable financing terms. Additionally, with increased demand for custom homes and a growing trend towards remote work, many people are looking to build homes that accommodate their new lifestyles. Adding to this environment, there is very little resale inventory to choose from; the inventory that is on the market is many times overpriced and you have to pay more than the asking price, waive appraisal requirements, and inspection requirements. Why not build what you want? By acting now, you can take advantage of these favorable conditions and start building your dream home.
Steps to Get Started
Assess Your Financial Situation:
Before embarking on your custom home journey, it’s important to evaluate your financial standing. Ensure you have a good credit score, stable income, and a clear understanding of your budget.
Find the Right Land:
The location of your lot is crucial. Consider factors such as proximity to amenities, schools, and your workplace. Work with a real estate agent who specializes in land acquisition to find the perfect spot for your custom home.
Choose a Reputable Builder:
Partner with a builder experienced in custom homes and familiar with construction to permanent financing like Keel Custom Homes. They can help you navigate the process and ensure your vision becomes a reality.
Apply for Construction to Permanent Financing:
Work with a loan officer like me to complete your loan application. Provide all necessary documentation, including plans and specifications for your custom home.
Begin Construction:
Once your loan is approved and you’ve closed on the financing, construction can begin. Monitor the progress closely and communicate regularly with Keel to ensure everything stays on track.
Move Into Your Dream Home:
After construction is complete, your loan will convert to a permanent mortgage, and you can move into your custom-built home.
Consider Refinancing if Rates Drop:
If for some reason rates drop over the next 5 years, no problem, I offer a free refinancing within 5 years of your initial closing. This way you can ensure you get the best rate available.
Conclusion
Construction to permanent financing is a powerful tool for anyone looking to build a custom home on their own lot. It simplifies the financing process, offers cost efficiency, and allows for complete customization. With current market conditions being highly favorable for buyers, now is the perfect time to take advantage of this financing option and start building the home of your dreams. My team at First Heritage Mortgage is here to guide you through every step of the process, ensuring a smooth and successful journey to homeownership.
If you’re ready to explore construction to permanent financing and begin your custom home project, don’t hesitate to reach out. Together, we can turn your dream of building on your own lot into a reality.
Joe Dunn - First Heritage Mortgage
EVP, Southern Virginia Regional Sales Manager | NMLS ID #160856