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November 09 2018

New Construction Financing Options

Overview Of New Construction Mortgage Programs In California

If you are evaluating building a new construction instead of purchasing an existing one, it is helpful to learn about the mortgage programs on the market. Financing new homes is somewhat different than buying an existing one. The terms, rates, and process may differ. Here are some popular new construction mortgage programs in California.

Construction Loans

Construction loans are temporary solutions designed to disburse necessary money throughout the construction process. There is typically a schedule for when funds are given and in specific amounts. Particular milestones must be reached for release of money to the builder. The expenses, interest calculations, and other conditions will differ by mortgage company. Construction loans are considered risky, thus conditions are often more stringent than regular mortgage programs. Upon completion of the construction process, a separate loan must replace it.

Construction to Permanent Loans

Construction to permanent loans require just one closing. During the construction phase, interest-only payments are commonly due. Once the property is completed, the mortgage turns into a normal loan with regular monthly payments. Interest rates are usually locked at the beginning, but the lock for the permanent portion of the loan may have a deadline. If the property is delayed, then your interest rate might change for the permanent loan.

Builder Financing for New Construction

This is the best alternative for home buyers since no special loan is required by the buyer. Buyers are typically required to provide a large deposit and to pay for upgrades up-front. Buyers must close on a loan at closing.

New Construction Mortgage Programs In California

Mortgage programs on the market may be based on whether you own the lot or the builder does. Lots that you own normally require a construction loan of some type. Builder financing is commonly offered within new subdivisions. Programs can also differ by mortgage company as some provide special programs. Connect with your loan officer to understand all of the different new construction mortgage programs in California and whether you qualify.