Finding the Right Loan for Your Custom Home: A Guide to Construction Financing
Building your dream custom home is an exciting journey, but securing the right financing is just as important as the design and construction itself. At Keel Custom Homes, we understand that selecting the right loan product can make the construction process smoother and more affordable.
In this blog, we'll explore three popular loan products designed for custom home construction. Each offers unique benefits, and we’ll help you decide which option might be the best fit for your home project.
1. One-Time Close Loan for Conforming Loan Amounts
The One-Time Close Loan offers an efficient way to finance your custom home with minimal hassle. Here’s why it stands out:
Loan Limit: Available for loan amounts up to $766,550, making it ideal for custom home projects within the conforming loan range.
Rate Lock: The 30-year fixed rate remains the same throughout the construction phase and into the permanent mortgage. This ensures you won’t have to worry about rising interest rates during the construction period or after completion.
Rate Float-Down: You also benefit from a one-time, free float down on the rate if rates decrease before construction ends. This flexibility can save you money without the stress of monitoring rate changes constantly.
While this loan product doesn’t allow financing for non-residential additions like barns or sheds, it’s perfect for those focusing on building their primary home. The fixed-rate certainty makes it a great option for long-term planners who value predictability.
Best Fit For: Homeowners seeking a simple, long-term financing solution with predictable payments and loan amounts under $766,550.
2. Two-Time Close Loan: Greater Flexibility for Larger Projects
If you need more flexibility in your financing, the Two-Time Close Loan could be the ideal solution. This option offers a higher loan amount and more flexibility with repayment terms:
Flexible Loan Amounts: The Two-Time Close Loan allows for loan amounts up to $3 million, with exceptions for larger projects. This makes it suitable for high-end custom home builds requiring more substantial financing.
Rate Structure: During the construction phase, the rate is typically set at prime plus 1%, giving you control over your financing while your home is being built.
Cost-Effectiveness: Although it involves two closings, the borrower receives credits toward the permanent loan, keeping the overall cost similar to a one-time close loan.
Down Payment Options: The standard requirement is a 20% down payment, but there are situations where we can secure exceptions, allowing for as little as 10% down.
This product is ideal for borrowers who need flexibility and higher loan limits. You can lock in your rate closer to the project’s completion, ensuring you secure the best available terms.
Best Fit For: Homeowners with larger-scale projects who need more flexibility in loan amounts and structure, especially for high-end custom builds.
3. One-Time Close Jumbo ARM: A Competitive Choice for High-End Custom Homes
For borrowers building larger, more expensive custom homes, the One-Time Close Jumbo ARM (Adjustable Rate Mortgage) is a competitive option, especially given current market conditions.
7-Year ARM: This loan product offers a lower interest rate for the first seven years, making it a cost-saving option during the construction phase and the initial years of homeownership.
80% Loan-to-Value (LTV): With a max LTV of 80%, this product allows you to borrow up to 80% of your home’s appraised value, reducing the amount of upfront cash required.
Fixed Construction Rate: Like the other one-time close options, the construction rate and permanent rate are the same, providing predictability and stability throughout the project.
While not widely available, the One-Time Close Jumbo ARM is an excellent option for borrowers who qualify, particularly for those seeking lower initial rates for high-value projects.
Best Fit For: High-end custom home builders who meet the 80% LTV requirement and prefer a lower initial interest rate during the construction and early ownership phases.
The Loan Process: Step-by-Step
Understanding how the loan process works can help ease any concerns you may have as you begin your custom home build. Here’s a step-by-step look at what you can expect:
Initial Consultation: The first step is discussing your financial needs and project scope. This allows us to determine which loan product is right for you and provide you with detailed information about the available options.
Application Process: Once you’ve chosen your loan, we’ll guide you through the application process. This includes gathering financial documents, ordering a credit report, and preparing pre-approval documentation.
Pre-Approval: After reviewing your application and documents, we’ll work on securing pre-approval, which typically involves credit approval and reviewing your financial information.
Appraisal and Plans: Once your pre-approval is in place, we’ll submit your home’s plans, specs, and building contract for an appraisal. This process usually takes about 30 days, depending on the scope of the project.
Final Loan Approval: After the appraisal is complete, your loan will move to final approval. Once everything is in place, construction can begin!
At Keel Custom Homes, we’re here to assist you every step of the way, ensuring that the loan process is smooth and efficient so you can focus on what matters most—building your dream home.
Choosing the Right Loan for Your Custom Home
Choosing the right loan product is a crucial step in ensuring the success of your custom home project. Whether you opt for the predictability of a One-Time Close Loan, the flexibility of a Two-Time Close Loan, or the competitive rates of a One-Time Close Jumbo ARM, it’s essential to find a financing solution that meets your needs.
At Keel Custom Homes, we’re dedicated to helping you navigate every stage of the custom homebuilding process, including finding the right financing option for your specific project. If you’re ready to get started or need more information, reach out to us today!
Build with confidence—your custom dream home is within reach with the right loan in place.
