15 Mar Choosing the Right Bank & Home Loan for You

If you’re considering building your next home, one of the first steps is deciding how you’re going to fund your project. The most common approach is to take out a home loan. If this sounds like something you might do, here’s a few types you’ll come across when building new, and some key questions you should ask when deciding on a bank.

What Type of Home Loan Should You Choose?

The main two types of loans that are associated with building new are an end loan and a construction loan. The easiest way to remember the difference is by who owns the land. If the builder owns the land, then you are looking to get approved for an end loan. If you own the land or are looking to buy land, then you are going to need a construction loan. At Diyanni Homes, we work with construction loans.

End Loan

1. You receive approval from the bank for the contract price of the home.
2. The bank lends the money to the builder.
3. At closing when the home is complete, the loan is transferred to you, and you begin to manage payments.

Construction Loan

1. You receive approval from the bank for the contract price of the home. This needs to include the price of the land you are looking to purchase.
2. The bank lends the money to you and there is a closing up front, before the project begins.
3. After the home loan closes, the bank makes payments to your approved builder during the construction of your home. These payments are called draws and are dispersed in set amounts at specific times to the builder until the project is completed.
4. Interest only payments are required to be made by you during the construction of your home.
5. When the home is completed, the construction loan converts to a home mortgage.

Questions You Should Be Asking Your Lender 

• Can you lock your interest rate up front during the construction of your home?
  • If yes, how long is the locked rate good for?
  • If not, at what point does the interest rate lock?
• Does it cost money when your construction loan rolls over to a permanent loan?
• How many interest only payments should I expect during the construction of my home?
• What are the closing cost fees?
• What percentage of the loans you generate are construction loans?
  (The higher the percentage the better. Construction loans require a higher level of knowledge, and if the loan officer is consistently generating construction loans, the smoother the process will be for you)
• What is your protocol on returning phone calls?
• How long have you been doing construction loans with the bank you are with?

Banks offer different types of mortgages, and the type of mortgage you receive depends on what you and your loan officer agree upon being the best fit for you.

Explain your situation thoroughly to your loan officer and have them go over all the different home loan packages they offer. Banks have packages that can save you a lot of money in the long run, so you should spend time reviewing them.

Are You Interested in Building a Custom Home?

Diyanni Homes is here to make the home building process as easy as possible. If you have any questions about construction loans, or would like bank recommendations, your Home & Design Professional will be available.  Visit our website or call 1-855-DIYANNI to learn more.