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Are you in the market for a new home? Maybe you’ve outgrown your current place, or you’re simply ready for a change. With the current housing shortage, some people are are choosing to build over buy because prebuilt homes are harder to come by.
Whatever the reason, building your dream home can be an expensive but exciting endeavor.
A study shows that the average cost of building dream home in the U.S. is $283,900, but most new homeowners spend between $119,412 to $449,159.
If you’re worried about this price tag, don’t be. Building your dream home can be well within reach with the right financing. Below are five finance options to consider.
1. Hard Money Loans
For most people, the thought of building a home from scratch is a daunting task. It’s hard enough to save up for a down payment, let alone come up with the rest of the money needed to build your dream house.
But what if there was a way to make your dream home a reality? Hard money loans are one way to do just that.
Hard money loans are secured loans given by private investors rather than banks or other financial institutions. The value of your property secures the loan, so if you default on the loan, the lender can take possession of your property.
The good news is that hard money loans are often easier to qualify for than traditional loans, and they can be used for various purposes, including building a new home.
Another benefit of hard money loans is that they have a short approval process. That means you can get the money you need to start building your dream house in weeks, not months or years.
So if you’re looking for a way to make your dream home a reality, consider applying for a hard money loan. Don’t let the thought of financing stop you from making it a reality. With the right lender, you could be well on your way to building the home of your dreams.
2. Traditional Construction Loans
Construction loans work a little bit differently than regular mortgages. You will likely need two separate loan approvals from the bank and the builder.
This process helps protect both you and the bank, as building a home can be a risky investment. But don’t let that discourage you! With careful planning and execution, your dream home can become a reality.
However, you will need a few things before getting approved for a construction loan. These include:
- A detailed building plan
- A realistic budget
- An experienced and reputable builder
- A projection of your project’s equity
If you have all of these things in order, you’re one step closer to making your dream home a reality. Congratulations!
Talk to your bank today about getting started on a construction loan. They can help answer any questions you have and guide you through the process. You can also learn more about construction loans and how they work here.
3. FHA Construction Loans (3% Down Payment)
You can use FHA loans to finance the construction of your dream house. You can even purchase an existing home that requires remodeling.
These loans are available through the Federal Housing Administration, and the government backs them. If you default on your loan, the government will pay the lender.
FHA construction loans are available for one-time close construction loans. This means that you only have to get one loan to finance both the purchase and construction of your home.
You can get an FHA construction loan with as little as a three percent down payment. But you will need to have a credit score of 580 or higher to qualify.
If you have a lower credit score, you may still be able to get a loan, but you will need to put down a larger down payment.
FHA construction loans are available for both single-family homes and multi-family homes.
4. VA Construction Loans (0% Down)
If you’re a military member or veteran looking to build your dream house, a VA construction loan may be the perfect option for you.
With a VA construction loan, you’ll not only be able to finance the building of your home, but you can also roll in the costs of land purchase, permits, and inspections into your loan.
There’s no need to worry about making two separate applications for a construction loan and a mortgage. With a VA construction loan, you can do it all in one.
A VA loan streamlines the process, making it easier to get into your dream home. To be eligible for the loan, you need a Certificate of Eligibility (COE). You can apply for one through the Veterans Administration website.
If you’re already working with a loan officer, they may be able to help you obtain your COE as well. Once you have your COE, you’re ready to start the construction loan application process.
Your loan officer will work with you to gather the necessary documentation, such as building plans and a detailed budget. Once your loan is approved, the construction process can begin.
The one catch with VA construction loans? These lenders can be difficult to find, so you may have to do some digging on the VA home loans website.
5. USDA Construction Loans for Building Your Dream Home (0% Down)
One type of construction loan you may be eligible for is a USDA Construction Loan. These loans are available to rural homeowners and can help you finance the construction of your dream home.
USDA stands for United States Department of Agriculture. The USDA Rural Development agency administers the USDA Construction Loan program.
To be eligible for a USDA Construction Loan, you must meet the following criteria:
- You must have a low or moderate-income
- You must be a U.S. Citizen or Permanent Resident
- The home you are building must be located in a rural area
With a USDA Construction Loan, you can finance up to 100% of the construction costs of your dream home. This means you don’t have to make a down payment!
If you think you may be eligible for a USDA Construction Loan, talk to your bank or mortgage lender about your options.
Ready to Build a Dream Home?
Are you ready to start building your dream home? Now that you know about the different types of loans available to finance your new dream home, you’re educated and prepared. Talk to your bank or mortgage lender today and start making your dream a reality.
Did you find this article informative? If so, explore other posts within the Real Estate section of this site.