Building a New Home? Be Prepared

Posted on: September 19th, 2014

Building your dream home is exciting! However, there are many unknowns, some of which are beyond your control. How long will construction take? Will the builder complete everything according to the plan? What will the final cost be? Securing financing for your construction project is a critical step in the process — and it’s something you can control.

New Construction Loans

Getting financing for new home construction is slightly different than getting a mortgage for an existing home. Here’s what you need to know:

  • A construction loan is typically set up as a variable-rate loan during the construction period.
  • Interest-only payments are made during the construction period, which can range from six to eighteen months.
  • A draw schedule for the loan is agreed on by the borrower, the contractor and the lender. This ensures funds will be available during each phase of construction.
  • If the borrower owns the land, the lot may be considered equity for the construction loan.
  • A certificate of occupancy is issued when the home has been inspected and meets certain building codes. At this stage the home is considered livable, which means financing can be obtained with a mortgage loan.

Construction-to-permanent financing

Jane Ashley, Director of Residential Lending

Jane Ashley,
Director of
Residential Lending

With a simple construction loan, when the principal balance comes due at the end of the construction phase, a new mortgage pays off the existing construction loan. If you have construction-to-permanent financing in place, the construction loan converts to permanent financing after the construction period. You enjoy the convenience of one loan, one application and one closing date. However, if you are seeking a different arrangement for the permanent phase, you have the flexibility to choose a mortgage program that better fits your long-term needs. At this time you may wish to lock in a low, fixed rate for your permanent financing.

At Seaside, our Residential Lending Advisors can help you explore financing options carefully so you can begin the construction phase with confidence.

For more information, contact your Client Advisor or Jane Ashley, Director of Residential Lending, at 407.567.2283 or via email at jashley@seasidebank.com.