Building a customized dream home in Texas offers the ability to design your ideal living space from the ground up. However, financing new construction is a more complex process than buying an existing house. (Guide to Construction Loans in Texas)
Securing the right construction loan is key to making your new home build smooth, efficient, and affordable. In this comprehensive guide, we’ll walk through everything you need to know including:
– How Texas construction loans work and are disbursed
– Costs, fees, and tips for minimizing them
– Finding the best construction lender for your needs
– The construction process step-by-step
– Things to be on the lookout for and questions to ask
– How to convert to a permanent end loan
Follow our advice to avoid headaches and get the home of your dreams!
How Do Construction Loans Work?
With a new build, financing is delivered in installments or draws as construction progresses in stages:
1. Research and apply for loan pre-approval from a lender experienced with construction financing. This gets you qualified and reserves the funds.
2. Once you have a contract on a lot and builder along with permits in place, the first draw is disbursed to excavate and pour foundations.
3. As framing goes up on the home exterior and interior, plumbing and electrical are roughed in, and roofing installed, the lender releases subsequent draws after passing inspections.
4. As finishing work inside the home is completed like drywall, trim, cabinetry, countertops, etc. additional payments are made to the builder.
5. The final disbursement comes after the home passes final inspections and receives a certificate of occupancy from the local building department.
6. Construction loans can then convert to a permanent end mortgage once the home is finished. This is arranged in advance with the lender.
Tips for Reducing Construction Loan Fees and Costs
While extremely helpful products, construction loans do come with higher interest rates, points, and fees compared to conventional mortgages on existing homes:
– Shop and compare total costs from multiple lenders rather than focusing only on interest rates. Online lenders sometimes offer lower fees.
– Ask your lender about discount programs if you bring additional business like your home insurance policy or long-term mortgage.
– Inquire if they offer free rate lock extensions should your builder encounter delays. Rate locks ensure your interest rate during the build.
– Opt for the shortest possible loan terms to reduce overall interest costs. But make sure there is wiggle room for potential delays.
– Put down 20% or more as a down payment if possible. This can score you the lowest rates and avoid expensive private mortgage insurance (PMI).
How to Select the Best Construction Loan Provider
Not all mortgage lenders offer construction financing, so it pays to find one experienced with builder relationships. Important considerations include the following:
– Established relationships with Texas builders in your area so they understand the local processes and your builder’s history
– In-house underwriters familiar with unique appraisal needs on unfinished properties
– Ability to handle draw disbursements and inspections promptly
– Variety of construction loan terms from 6 months up to 2 years or more
– Clear path to get you into permanent end financing once the home is finished
– Responsive loan officers who can explain the construction loan process and timelines
ZAPA Mortgage offers deep expertise with Texas construction loans and builders. Contact us today to explore your financing options and get the keys to your perfect custom home!