Financing Your Custom Home

Financing Your Custom Home

The topic of home financing doesn’t have to be intimidating. To simplify everything for us, we sat down with DeAnna Morgan, Senior Loan Officer of The Morgan Group at Mid America Mortgage to walk us through the process. Financing the construction of a custom home is different from a typical mortgage. When building your dream home you need an interim construction loan - a loan most people are much less familiar with. In this post, we hope to provide a basic understanding of custom home financing.

The three primary transactions in custom homebuilding are the land purchase, construction, and a mortgage. When securing financing, you may need a separate loan for each although various institutions will package these types of loans together.

If you do not already own your piece of land outright, the lot loan will serve to purchase your homesite. The interest rates for this loan will vary depending on the location, size of the lot, and value of the land along with other considerations. Once you have your land, you can begin building your home. The actual building project is financed through an interim construction loan which is set-up to release periodic draws to pay for the phases of construction while the house is being built. Once the building is complete and the project is finished, you are then ready to take out a mortgage for the completed home. 

Construction Loans

Different from a typical mortgage, construction loans are of short duration, usually 6-9 months depending on the scope of the project. Since there is no existing home for the bank to use as collateral for the loan, a construction loan typically requires a larger down payment of anywhere from 15% to 20% of the total loan cost. A huge advantage of our partnership with DeAnna at MidAmerica Mortgage is that her firm has the ability to offer a 5% down payment on the interim construction loan with certain requirements being met!

Mortgage Loan

Once construction has been completed, you will need to refinance your interim construction loan into a mortgage or “permanent” loan. There will be another set of closing costs for this and interest rates will vary depending on the value of the completed house, your financial position, credit worthiness, and other considerations.

Pros and Cons of an Interim Construction Loan

Benefits

One benefit of construction loans is that they are interest only. The monthly payments are lower, so you can save towards your mortgage. Terms are often more flexible than those of a traditional mortgage loan, and the additional scrutiny helps your project stay on track and on budget.

Disadvantages

The main disadvantage of interim construction loans are the higher interest rates and stiffer qualification requirements. You pay for the flexibility with higher qualifying standards. From a bank's perspective, construction loans may seem riskier since the primary source of repayment is the permanent mortgage loan.  This is why most lenders require a pre-approval for permanent financing before approving a construction loan.

Our Partnership with MidAmerica Mortgage

On top of the opportunity to pay a 5% down payment versus the typical 15%-20% down payment to secure the loan, our partnership with MidAmericaMortgage is custom built to fit each client's needs; the team at MidAmerica Mortgage works to design a relationship tailored to you and your individual needs. They are committed to providing a unique approach and experience to lending. They bring the extensive experience and knowledge needed to lead a successful mortgage transaction while taking their time to guide homebuyers through the process. Throughout the process our clients will receive gifts to show their appreciation for their business. They also have a referral program for buyers when they refer clients to them. They do everything in their power to ensure our clients receive the highest level of service and at any time during the process if you have any questions, comments, or concerns, they are there to listen.

Securing your financing before building your custom home will provide the security of knowing you can pay for everything you need during the building process. Like any loan, you and the lending institution are taking on some risk, so partnering with a reputable builder can lower your interest rates and help you obtain the best financing possible. Building your dream custom home may be a once-in-a-lifetime-achievement, so you should feel comfortable talking to your builder and their lender referrals in depth about all financing options.  

If you have specific questions about securing financing for your custom home, feel free to contact DeAnna Morgan at 972.755.4876 or contact our team today. We’ll be happy to answer any and all questions you may have! 

Blog #1: Did you know...Spray Foam

Hey everyone! Welcome to our blog! 

Thank you for taking the time to read what we have to say. We hope that this information is helpful, educational, and interesting for you. If it is, we hope you consider sharing this on any of your social media accounts and with your friends and family. We would also love to hear your feedback. If you have questions or comments, please feel free to reach out via Facebook or Instagram. Let us know what topics you’d like covered! 

For this blog we’re going to discuss insulation, specifically the spray foam insulation we use in the vast majority of our homes. 

What is it and how does it work? 

Well…its foam! More specifically, the foam is a mixture of chemicals that react with oxygen. When this reaction occurs, the foam expands 4-5 inches filling wall and ceiling cavities. This layer of foam takes the place of traditional blown or batt insulations.

Why foam?

That is huge question. There are a ton of reasons why and I’ll try to cover a few. 

First and foremost it provides a better R value (how effective the insulation is; thermal resistance) per inch (thickness) as compared to traditional blown or batt insulation. This allows your home to stay warmer in the winter and cooler in the summer. As I’m sure you can imagine, that reduces heating and cooling cost which saves you money! Most estimates center around 50% savings over time vs traditional insulation types. 

Foam also last longer when compared to the traditional blown and batt insulation styles. Foam tends to be more resistant to moisture, chemicals, rodents and dirt which are the main killers of insulation. Additionally, foam is MUCH better at sealing off spaces from air intrusion. This leads to better performance of your insulation. 

Lastly, foam can lead to a healthier home. Being resistant to moisture and mold growth combined with a solid seal from the outside dust and pollen leads directly to better air quality inside your home. This allows you to save money and breathe easier! 

So foam sounds great…what’s the catch?

 Cost. There is no hiding it. Foam is the highest performing insulation option on the market today. With that performance comes additional cost. We generally see foam accounting for an increase of approximately 50%. For reference, in a 2,000 square foot home, you’re looking at $2,500 for blown/batt vs about $5,000 for foam. We think it’s worth it. 

If you’d like to learn more:

Please feel free to visit our preferred vendor’s website: http://www.rosesprayfoam.com and as always come back for our next blog! We will continue to cover any and all aspects of home building!