Financing Information

There are three possible loans associated with building a custom home:
 
• Lot Loan - Lot loans are used to secure a lot for the construction of a new home. Sellers will typically want the lot to be closed on within 30 to 45 days. It is infrequent that a seller will allow more time. If you agree to use the lender for the construction and mortgage loan, you will get preferential terms on the lot loan. The construction loan and lot loan will be consolidated into a single loan.
 
• Construction Loan - The construction loan is the money that is actually used during construction of the home and is based on short term interest rates. Think of the construction loan as a line of credit, where your builder is given the money as the home is being constructed, based on levels of completion. Generally, some contingency is built into the loan to handle fluctuations in material costs or change orders requested by the client. At the completion of the home, the amount of money actually used, plus interest charges and any other fees are consolidated and rolled into the mortgage.
 
• Mortgage - The mortgage is based on long term interest rates and may or may not be at an interest rate similar to the lot loan or construction loan. Lenders may offer to do a two time or one time close. A one time close will be where you close on the construction loan and mortgage at the same time. This allows you to “lock” the mortgage interest rate at the start of construction rather than at completion.