Just like purchasing an existing home, the first step in building a new home is consulting a lender who can help you determine a realistic budget. Even if you’re paying cash and know how much you have to spend, there are factors that impact the overall budget of your new home, such as site preparation and the finishes you choose, that must be taken into consideration.
It’s also important to choose the right lender, one with construction lending experience – and better yet, with local construction lending experience.
Why? Construction loans are different than mortgage loans in that they are based on a series of draws. Rather than advancing the entire loan amount at once, funds are released to the builder incrementally.
When certain stages of work are completed, a written draw request is made to the lender which then sends an inspector to the site to verify that the work is, in fact, complete. Additionally, the lender verifies that materials have been paid for and that subcontractors have been paid up through the stage of work for which the draw is requested.
Behind the scenes, this is a relatively complex process which, if managed by an experienced construction lender, can avoid construction delays and frustration.
Large national lenders generally make construction loans, but they don’t necessarily have their fingers on the pulse of local real estate markets as local lenders do, nor do they necessarily have local personnel to process the draws quickly and efficiently. And since draws are the very foundation on which construction progresses smoothly, you can see why a good lender with local construction lending experience can make all the difference in your overall experience.
Need the names of great local lenders? Ask us!
- Betsy de Parry, VP, Marketing and Sales