You want to build a house. What’s the first thing you should do? Meet with a mortgage lender. You need to find out if you can afford to build and to what level. Eight years of my career was specifically in the mortgage industry. I would guess that at least 75% of those first meetings, customers had no idea if or what they could afford. Do yourself a favor and hold off on dreaming what you think you’d like to build until you do your homework. I know that’s hard, but you need to know what you can qualify for.
Here’s some tips and things to consider when looking for and meeting with a mortgage lender.
- If you have worked with a mortgage lender before and are comfortable with that person, go see them again. If you do not have a prior relationship, do some research. Ask friends, family for recommendations. One place to start might be with financial institution you have your checking/savings accounts with and ask them if they have a mortgage lender on staff. Trusting the person you work with is critical, especially when building. There are a lot of financing options, from traditional banks, credit unions and independent mortgage lenders.
- Start saving money right away. You will need money down. You might need anywhere from 5% to 20% down.
- Most start with getting a construction loan in place. Construction loans are typically interest only loans. Ask what fees are charged on the construction loan. When the house is completed, you are going to pay off the construction loan and then move to a permanent financing loan. You need to know what fees will be charged on that loan.
- On some occasions your builder might carry the financing on the construction loan. While rare, you would still need to pre-qualify with a lender to assure your builder you can qualify for what you are hiring them to build.
- If everything sounds good, then get pre-qualified. Get an application completed, your lender will pull credit and tell you what you can afford.
- All lenders are not created equal. Fees vary from lender to lender. Shop around.
Lastly have patience. This whole process will be demanding. Expect some hiccups. There’s a lot of moving parts so the more organized and attentive to details you can be, the better. But remember there’s a lot to this process that is not in anyone’s control. Do the best you can to make this fun. Keep thinking about the end and how much you will enjoy you brand new home.