One of the least exciting and most serious topics when it comes to building: Financing. But it's an important one and I've gotten quite a few questions about it so I thought I'd create this blog post for you to refer back to.
I shared all of this on my Instagram stories and saved that in the Building 101 highlight for you. I also want to reiterate here that we are not experts and are only sharing our experience to help others. You should always consult with your lender or loan officer.
A few things to keep in mind:
If you can do a one-time close, I recommend it. It saves you money on closing costs and lets you lock in your interest rate immediately (especially since interest rates are so low at the time of this writing)
Price per square foot has so many variables: building materials, where you live, etc
Everyone's building experience is unique and building prices change each year
We did not self-contract. Our builder and the bank communicated directly with each other and we
We owned our land prior to building, we did not have a loan on it
Now here are a few of the questions I received from my Instagram viewers:
How much of a down payment is necessary?
This depends on your bank and if you're willing to pay PMI (principal mortgage insurance). It could range anywhere from 5% - 20%. If you pay 20% you usually don’t have to pay PMI. You'll want to consult with your lender and they will be able to tell you.
What if you want to pay cash for things?
Talk to your builder, but you can usually pay cash for specialty things like we did with our lights and mirrors. However, unless your are your own General Contractor, you usually can't pay for big things like the electrician with cash. Typically the bank will want to see the completed work and pay for it through your loan.
Can you pay contractors yourself?
Usually no, unless you are your own General Contractor (GC). Check with your lender.
What is price per square foot of a house?
This varies so much for each house. It all depends on the level of finishes, and each and every detail. For example, if we would have chosen hardwood floors instead of LVT, the price per square foot would be different because I'm adding a more expensive material in the house. It's also important to note that building prices continue to increase year-to-year. When we talked to our builder, they said that if we started building our exact house again today it would be more expensive.
Can we draw from the construction loan?
Unless you are acting as your own GC, no you can't draw the construction loan. The bank and the builder communicate with each other and make sure the work is being done. There are set draws that happen at certain times and that is all done through the builder.
What if we have a loan on the land?
Talk with your bank. If the loan for your new build is from the same bank that your land loan is with, they may be able to roll it into one loan or come up with a solution that works best for you.
Do you have t put down anything if you own your land?
This will depend on the value of the land vs. the loan amount
How much are closing costs?
Closing costs are usually about 2-3% of the loan amount.
Tune into my Instagram stories every Wednesday to Building 101!
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