How to Get Financing for New Construction Homes
Building a new home is an exciting life milestone and one of the first questions that will come to mind is how to handle the financing? How does the loan process work? How much down payment should you save? What credit score will you need? Below we will share our top resources and recommended lenders for financing your new construction home in Indiana.
What is a Construction Loan?
A construction loan is a loan the buyer qualifies for that covers the cost to build a new home. The lender will fund the loan and the builder can take withdraws from the escrow account in phases to cover the bills being paid out for the materials and labor to build the home.
What Downpayment is Required?
Lenders will vary on their down payment requirement but we’ve worked with lenders who accept as low as 5% down and others require a standard 20% down payment on the loan.
What Credit Score Do I Need?
Most construction loan products will require at least a 620 credit score. Some lending institutions may stipulate higher credit score requirements. Get multiple quotes from multiple banks to compare your options.
Is the Land Purchase Price Part of the Construction Loan Amount?
If you are purchasing land, most lenders will add the land purchase price on top of the construction cost to build, for a total loan amount that includes both land and build costs. You’ll then be asked to make a minimum downpayment of 5-20% depending on the lender.
Will Lenders Count the Land Equity as Down Payment?
If you already own land, the lender will calculate how much equity you have in the land and they’ll apply that amount towards the downpayment of the loan. For example if land is $50,000 and the construction cost is $250,000, the total loan would be $300,000. But since you own the land debt free, the bank would count $50,000 land value as your down payment on the $300,000 loan so you’d have a $250,000 loan for the construction.