Finding the perfect home is a big enough challenge and when you finally find the new construction home you want, you’re left with the decision of whether or not to use the builder’s preferred lender. Many borrowers are unaware that they don’t have to use the builder’s preferred lender. While the preferred lender might offer some cash for closing costs, a mortgage broker can often offer a lower rate with fewer total closing costs paid out of pocket.
When considering a construction loan, it is important to know the difference between the types of new construction loans and whether or not your mortgage broker can offer a product for them. There are three kinds of new construction home loans: Construction, Construction-to-Permanent, and End loans.
Construction loans finance the construction of a home and generally last for about a year. Many lenders don’t offer these due to the risk associated with the building process.
Construction-to-permanent loans begin as a short term loan to finance the construction and then convert to a normal mortgage to payoff the home. These can be a bit more expensive than traditional mortgages, so we’ll be sure to shop around for you to guarantee the best pricing if you decide to go this route.
End loans are the most common and least complicated type of new construction loans. These loans are just like any other mortgage, and are used for newly constructed (finished) homes.