How to Finance Your New Home with a Construction Loan

AV Architects + Builders CEO, Francisca Alonso, recently sat down with Executive Vice President of Intercoastal Mortgage, Josh Burruss, to discuss financing in the home building industry and how it works. 

Many clients wonder if financing is an option for their new home construction project, and it absolutely is! We recommend that you work with a lender who has experience in residential construction loans to ensure the best experience.

With over 20 years of experience designing and building homes, Francisca has worked with many clients who chose to finance their new home construction project. Josh is a seasoned lender who has risen to be the Chief Lending Officer for his firm and has guided countless clients to success in their homebuilding journey. 

This article sheds light on the role of lenders, the differences between working with a bank versus a mortgage lender, and the factors that determine interest rates and loan terms. Additionally, we take a look into the construction process and the importance of having a local lender who understands the intricacies of the area.

Josh defines the primary role of a residential home lender: to provide financing solutions for various real estate needs, including purchasing, renovating, cash-out refinancing, and new construction. He emphasized the importance of lenders guiding clients through the process, ensuring they have a clear understanding of their financing options and creating custom solutions tailored to their unique circumstances.

What is the Difference between Working with a Bank and a Mortgage Lender?

When discussing the difference between working with a bank and a mortgage lender, Josh pointed out that mortgage lenders specialize solely in residential lending, while banks have diverse departments that may include mortgage services. Lenders, therefore, possess a depth of knowledge and expertise focused solely on lending for residential homes. They prioritize building long-term relationships with clients, helping them navigate their financial journey and maximize the benefits of homeownership.

Why Should I Choose a Local Lender for my Construction Loan?

One aspect to consider when choosing a lender is their location and knowledge of your area. Josh emphasized that the advantage of having a lender who is deeply connected within the local community is that they can offer a more personalized service, quicker response times, and a stronger commitment to their clients. Local lenders have a vested interest in maintaining their reputation and delivering exceptional results, as they rely on referrals and long-term relationships to sustain their business.

What Factors can Impact Interest Rates and Loan Terms?

There are several factors that come into play when considering interest rates and loan terms. These include:

• the client's credit score
• loan amount
• loan-to-value ratio
• the applicant’s ability to meet income and asset requirements

By gathering comprehensive financial information from clients, lenders can assess their situation and provide them with the best possible interest rates and loan products. An experienced lender will focus on educating their clients about their options, empowering them to make informed decisions and helping them save money over the long term.

What is the Role of a Lender in the Construction Process?

Collaboration between the builder and the lender can improve the overall process, particularly when it comes to ensuring a smooth funding process. Josh highlighted the importance of a local lender's involvement in construction projects, offering transparency, expertise, and efficient funding. The ability to provide in-process loan amount changes and innovative solutions, such as bridge loans, allows clients to tap into their existing home equity to fund their new construction projects.

Josh and Francisca both emphasized the value of a client-focused approach throughout this process, aiming to provide a seamless and enjoyable experience for the homeowners. By working closely with clients, educating them, and customizing financing solutions to their specific needs, lenders can help clients achieve their homeownership goals and build long-term wealth.

How much cash do I need to put down upfront?

The higher you go in budget, the more money you need to put down at the beginning. It is based on the loan to value requirement, which is the amount of loan divided into the value of the home. 

Meaning the higher you go on that scale, the more down payment you need because it represents a higher amount of risk to a lending institution. Experienced residential construction lenders will communicate with their client to determine the right project size for their budget. 

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