More than ever, urban wanderers are seeking an outdoor lifestyle coupled with modern amenities, and they seem to have found what they are looking for in the high desert hub of Bend, Oregon.
While Central Oregon is enjoying the benefits of a booming economy (even during a pandemic), the influx of new transients is not without consequence: Housing seems to be in short supply and never-ending high demand. Since buying a home has become trickier, many are turning to new construction to fulfill their needs.
Building a new home isn’t quite as straightforward as buying a previously built house, but there are benefits: You get to pick the lot that it sits on, you can choose the layout and finishes, and you can count on a well-built home to have a low-maintenance cost. For a full list, check out the Benefits of Buying New.
One of the more complicated aspects of building a home is financing, but don’t let that scare you! Here, we break down the various financing options for building a new construction home in Central Oregon.
How Do I Qualify for a New Construction Loan?
Before we get into the details of a new construction mortgage, let’s cover the basics to make sure your family is eligible for this type of financing. Here are a few standard requirements from most lenders:
- 20% or higher down payment.
- Builder secured with detailed construction plan.
- Credit score of 680 or higher.
What Types of New Construction Loans Are Available to Me?
There are several types of new construction loans and mortgages to choose from. We’ll focus on the most popular ones.
Construction-only loans are almost self-explanatory by their title: They’re meant to fund the construction of the home and not much else. The loan is usually short term and has an adjustable interest rate that sits slightly higher than trending mortgage rates. Once the home is built, the buyer is expected to pay off the loan or apply for a mortgage. This option is less popular because it requires two application processes and two closings.
2. Owner-builder loan
These types of loans are designed to help fund an owner who is building their own property. While helpful in cutting down on costs, we do not typically recommend this unless the owner has extensive building experience and a ton of idle time
3. Renovation loan
Renovation loans are designed to allow the buyer to purchase a home and cover the renovation costs in one fell swoop. Buyers with their eye on a fixer-upper will find this construct helpful. Currently, the Arbor Builders team is focused exclusively on building homes from the ground up, not necessarily renovating previously built homes.
Most of our clients tend to choose from one of these two construction-to-permanent loan options, which gives the buyer the opportunity to roll over their construction costs into a permanent mortgage. These are also referred to as:
- Single close loans.
- One-time close loans.
- Construction to perm loans.
- CTP loans.
4. Portfolio all-in-one construction loan
Breakdown of a portfolio all-in-one:
- Primary and secondary home financing with loans up to $3 million.
- 30-year fixed and adjustable-rate options.
- Medical-professional construction financing up to $3 million, with expanded down-payment options.
- 12-month construction term with interest-only payments (exceptions to 24 months).
- Potential expeditious draw process.
- Conventional all-in-one construction loan
Once the home is complete, buyers have the option to roll the construction costs into a permanent mortgage.
Breakdown of a conventional all-in-one:
- Multiple down-payment options available.
- 30-year fixed-rate mortgages available.
- Expeditious draw process.
- 12-month construction term, with exceptions to 18 months.
- Free interest rate float option.
How Does a New Construction Loan Work?
Now that you know which new construction home loan to set your sights on, let’s break down the process. For the purposes of this exercise, we’ll be focusing on a conventional all-in-one mortgage.
Step 1: Find a qualified builder
Finding a qualified builder in your area is an important first step in the process. Start by conducting an online search, browsing models and portfolios, and finally, get in touch. If they’re any good, they’ll take things from there.
Tip — We recommend looking for these qualities:
- An extensive portfolio.
- Good reviews and references.
- Quality materials.
- Strong customer service.
Step 2: Contract preparation
Once you find the right builder to begin construction on your dream home, they’ll begin drawing up a contract and construction plan. Review the details thoroughly, and be sure to ask plenty of questions. This is not a process that you want to rush!
Step 3: Loan underwriting
Once you officially sign the docs, the contract will be sent to a loan underwriting team, which will put your life and finances under a microscope to determine your eligibility. If this is your first home, you might be overwhelmed, so take it slow. Underwriters will walk you through their unique process and answer any questions that you might have.
Step 4: Close loan and begin construction
Once the underwriting process has been completed, you and your new building team can begin construction on your new home! Builders are expected to begin building your home quickly, and it will usually take up to a year to complete. The financing does not go to you, but to the builder, who will pull funds as needed in scheduled draws based on their construction plans.
Building a new home can be both challenging and immensely rewarding. As you go about the process, remember to take your time, ask questions, and shop rates from lenders. Many home builders will have lenders that they can refer you to, which helps expedite the process. Whatever you decide, we hope that the tips included in this blog will help you in your quest to build the house of your dreams!
If you’re ready to start the process, reach out to Arbor Builders today.