Construction Financing 101 with Novus Home Mortgage
Penned by Allison Shaw, founder of Novus Home Mortgage.
Whether you have always dreamed of building your own home or not, more-and-more people are finding themselves considering it as a scenario.
Here are two scenarios we hear most often:
“I’ve been searching for a home for months and with limited inventory I just can’t find what fits my family’s needs the best – I think we need to look at new construction, but I just don’t quite understand how it would all work?”
There are a lot of intricacies to construction financing, and it is important that you work with a lender who truly knows how to manage the process for a seamless closing. There is a lot to dig into but for high level understanding here are the cliff notes:
Some national builders will carry the financing for you and then you are just purchasing the home at the end, like a normal, existing home! Very straight forward.
More custom or higher price point builders prefer the client to carry the financing. This requires the client to put 10% down when closing on the lot and initial construction loan.
The borrower will pay interest only payments on the amount that is drawn from the construction loan through the home being finished. Ex: If the home is half built and the construction loan draw is 400k; the payment that month would be $1,500
When the home is finished being built the lender will then ‘transfer’ the construction loan into a 30-year fixed mortgage; or whatever you prefer! you asked.
2. “We have lived in our house for years and we just wanted to find something more updated; but with the current inventory and how competitive the market it is – buying a home now just doesn’t seem to fit our plan. Can I borrow money for the desired improvements on my home?”
People have more equity in their home now than they historically ever have had before. This gives many homeowners lots of options to ‘financing’ their home improvements!
A cash-out refinance might be a great option! With rates at record lows, you could potentially pull equity out of your home at a 30-year fixed interest rate and use the money for improvements, paying down debt, really, whatever you want!
Home Equity Loans – There are a few different types of equity loans, second mortgages, etc. that you can also use to pull equity out of your home. Some of these loans you can even base off ‘as improved value’. That means if you plan to finish your basement and it will add 20k of value to your home; you could borrow 20k to finish the basement.
Looking to add more energy efficient windows or other upgrades? There is a MN Housing back program just for this option! Even with very little equity in your home you can borrow funds for the cost of energy efficient upgrades.
If one of these scenarios sounds like your current situation, I’d love to connect and see how I can help!
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allison shaw of Novus home mortgage
Allison’s social character is what drives her to build such a strong foundation with her clients from day one. She believes fostering current relationships, while continuously extending a hand to new affiliations is what keeps her professional life successful and exciting. By creating an environment where people feel comfortable asking questions and expressing their housing goals, she’s able to cater her methods to each unique individual.
Allison leads the Novus Home Mortgage team of local mortgage experts, and is always open to connect and provide advice Follow along with @mplsmademortgage on Instagram, or at allisonshawloans.com.
