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| A. Ask lenders to explain the loan programs they offer. Loans and qualification requirements constantly change, so it's important to find out what options are available to you. Some buyers are surprised to discover they can qualify for a larger mortgage than they thought they would be able to obtain. Others are saddened to learn their dream home is financially out of reach, at least for a while. |
| A. Before you begin consulting lenders, get a current copy of your credit report and address any errors or negative ratings on it. Cleaning up your report ahead of time will position you in the best position to borrow money. Be prepared to explain any derogatory information in writing.
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| A. The total amount of money you'll need at hand to build your new home depends in part on the scope of the project. For a production or tract home, the amount of money you'll need to get started isn't much more or much less than you'd need to purchase an existing resale home. Generally, a small deposit may be the extent of what's initially required. For a custom-home, you'll need a substantial amount of cash prior to obtaining your construction financing. Builders suggest budgeting at least $6,000 to $15,000, depending on the anticipated size of your home. These up-front expenses are part of the total project cost and often can be “reimbursed” to you in your construction loan or considered to be part of your down payment.
The building process involves a number of expenses you'll incur before your construction financing becomes available. These expenses might include a deposit on purchasing your lot, preparation of the plans and specifications for building, site engineering, various government building fees, loan application fees and a deposit on the builder's services or any preliminary fees payable to the builder.
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| A. Many builders require a down payment of at least 10 percent of the total cost for a custom or semi-custom home. Sources of down payment funds might include equity that has accumulated in your current home, savings, down payment assistance, other liquid investments, equity in the lot for your new home (if it has already has been purchased) or other investments that will be liquidated prior to the start of construction.
If the equity in your existing home will be the main source of your down payment on your new home, you probably will want to obtain a realistic estimate of the market value of your home and how long it might take to sell your home. Interview several qualified real estate agents who are familiar with your neighborhood and ask each to give you a comparative market analysis for your home. Selling your current home before building begins on your new home can be very helpful even though you may have to move twice. Trying to time the sale of your current home to coincide with the completion of your new home can be nearly impossible and extremely stressful.
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| A. During the design and construction stages of building your new home, you'll be presented with many opportunities to upgrade every component from the windows to the cabinet hardware. Having cash reserves or additional borrowing capacity will enable you to include those upgrades that will make your home special for you. If you "max out" your budget on the basic home, every decision about options and upgrades will be difficult.
Setting a realistic budget is one of the most important steps in the home-building process. Approaching budget constraints carefully can help set the stage for a rewarding home-building experience. |
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