Part 5: New Construction Loan
WI new construction loans are products sold through financial institutions like credit unions, building and loan companies and most banks. WI new construction is good business for lenders so they have created a variety of construction loan programs designed to take the hassle out of securing funding to build WI new construction. Moreover, they compete with each other for customers– so shop around for the best deal.
The Big Picture.
The purpose of the WI new construction loan is to finance the actual construction (and maybe the lot) and when the new construction is completed, transition into a mortgage, often called the “end loan.”
Typical WI new construction loan programs work something like this: You borrow a certain amount of money that you put together with your savings and possibly the equity in your existing home if you already own. All together you want the total of this money to be a little greater (5% or so) than the expected finished cost of your WI new construction project. There are always some “unexpected” costs associated with new construction so you want to have a little cushion built into the plan.
The Builder will take Draws.
Over the course of the construction, the WI new construction builder will take “construction draws” against the loan amount as certain predetermined construction milestones are completed. For example, after the excavation and foundation are completed; after the framing is done and the roof is on; after the electric and pluming are completed; etc. When the new construction builder starts taking draws on the new construction loan, the “interest meter” is turned on and the buyer starts making interest payments on the sum of the draws until the WI new construction is complete. As the sum of the draws increases the buyer’s interest payments will also increase. Once everything is done, the new construction loan would be modified to become the mortgage and the buyer would start making principal and interest payments.
Different Construction Loans can make a Lot of Difference.
The kind of WI new construction loan you get depends on how you are acquiring your lot and if you are ready to begin your new construction right away. If you are not ready to build right away but still want to secure your lot, you can apply for a lot loan to purchase a lot directly. Be ready, however, because lot loans on an ala carte basis frequently require a 25%-30% down payment.
If you are ready to begin your WI new construction right away, then you may be able to get a combination lot and new construction loan. This can be a more economical choice than the pure a la carte process because this type of loan may only require a 10% down payment. If the builder owns the lot, it makes the package even tighter because you have fewer closings and hence fewer closing costs.
Know the Conditions of Your WI New Construction Loan.
It is very important that you discuss all the conditions that apply to your WI new construction loan. There may be restrictions on what you can do on-site and these restrictions are associated with state lien laws that are designed to protect the rights of workers and suppliers. So before you plan to cut costs by installing your own plumbing, be sure to talk to your lender and builder about your WI new construction loan restrictions.
Nelson & Associates is your New Construction Buyer’s Agent Specialist.
As a Certified Residential Specialist and Accredited Buyer Representative with years of experience helping clients purchase WI new construction, I would be very happy to work with you on your WI new construction project. Give me a call today, and we can get started right away.