The Mechanics Of Financing New Construction Owning a home is a great experience and one of the best investments you can make. Whether you are looking at your first home or your fourth home, you will have two options put in front of you… build or buy. The decision to build or buy is not an easy one and each has its own set of advantages and disadvantages that need to be carefully weighed against one other. If this is your first time around, there will be lots of decisions in any path you choose. When making your decision about building or buying, don't rule out building too quickly. Building your home offers tremendous sentimental value and advantages in the long run. When you build a home, you can have everything your way - from the tile in the bathroom to the cabinets in the kitchen and everything in between. There are definite feelings of emotional fulfillment and pride in a home you start and finish. Also, having everything brand-new and up-to-date is a tremendous advantage, such as new appliances with the original warranties. If you are looking at building, you’ll definitely want to do your homework first. There are several steps to take in financing a new construction home. As long as you think ahead and work with a qualified lender, you will be ahead of the game. Here are a number of items to consider in building and financing a new construction home. What is a construction loan? Most people are not able to afford the cost of the home construction up front, and Helping members with their dream home. Visit with a Services Center FCU loan officer to learn about joining a credit union and to pre-qualify with no application fee. 605-665-4309 | scfcu.net getting a mortgage can be tricky. After all, you’re asking a bank or a mortgage lender to give you money for something that doesn’t even exist yet. Because of that, a standard mortgage loan does not work – but you may be eligible for a special type of loan known as a construction loan. A construction loan is typically a shortterm loan used to pay for the cost of building a home. It may be offered for a set term, such as 6 months, to allow you the time to build your home. At the end of the construction process, when the house is done, you will need to refinance and enter into a brand new loan of your choosing – such as a 30-year fixed rate conventional mortgage. How to qualify for a construction loan at First Dakota? In order to qualify for a construction loan, you must show you can handle making payments on a loan and the property itself will be worth what is being borrowed. Here are a few factors which play a role in determining if you can obtain the loan. Getting a construction loan is by far one of the best ways to finance building your home. 1) Income: Provide all the income sources and proof of income, including W-2s, tax returns and paycheck stubs. 2) Credit score: Maintain a high credit score. In most cases a credit score over 700 is best. 3) Debt-to-income ratio: Your debt-toincome ratio is an indication of how much credit you can manage. To lower it, reduce your credit card or other loan balances as much as possible prior to applying for the loan. 4) Down payment: One of our experienced mortgage lending officers at First Dakota with discuss with you all of your options for a down payment. Typically, 10% is the minimum you need to put down for a construction loan – some lenders may require as much as 25% down. 5) General Contractor/Builder: Hiring the right contractor is important. You may think the best way to save money is to self contract. Before going too far down the self contracting path, take a hard look at what is required to succeed at it and define the potential savings. Then decide if it is worth vFinancing New Construction continued on page 12 HERREN•SCHEMPP BUILDING SUPPLY We deliver to the entire area! 1000 W. Cherry St. • Vermillion Mon-Fri 7:30 a.m.-5:30 p.m. Sat 7:30 a.m.-5 p.m. 888-624-2058 • 605-624-2058 www.herrenschempp.com Locally Owned and Operated Headquarters for the Builder/Handyman 8 • TODAY’S HOME - Spring 2018