When it comes to owning the home of your dreams, constructing a brand new home from scratch can be a highly rewarding process, with benefits aplenty. Us Invest Financial will guide you through the entire process of obtaining the right construction loan to make your dream home a reality. From understanding the ins and outs of commercial loans in South Florida to breaking down the steps you need to take, we’ve got you covered. So let’s get started on building the home you’ve always wanted!
If you’re in the market for a commercial construction loan in South Florida, it’s important to understand that this type of loan is typically short-term, with a loan term of one year.
Construction loans are specifically designed to cover the costs associated with building a new structure or making major renovations to an existing one. It’s worth noting, however, that these loans can be considered a higher risk due to factors like builder cooperation and local approvals. As a result, construction loans can be harder to qualify for than traditional loans and may come with a higher interest rate.
To increase your chances of approval, it’s important to review your credit report several months before applying for the loan and work on improving your score by paying down debt, keeping your debt-to-income ratio low, and checking for errors on your report. It’s also recommended to avoid making any significant purchases leading up to your loan application. Lenders typically require a minimum credit score of 680 for approval, with some requiring a score of 720 or higher.
You may be wondering whether buying or building a house is cheaper. On average, building a new home costs $34,000 more than buying an existing home, with the median cost of new construction at $449,000.
According to the latest Zillow Home Value Index data, the median cost to buy an existing home in Florida in 2023 came to nearly $377,706. Remember that the cost of building a new home includes purchasing a plot, excavations, permits, inspections, and other associated expenses. However, if you already have a lot on which to build, the cost of building a home drops significantly.
A study by the NAHB estimates that the purchase price for a plot accounts for 18.5% of the total cost of new construction, lowering the estimated cost of building a home to $365,935 for those who already own a lot. Whether you choose to build or buy depends on several factors, including your needs, location, timeline, local home inventory, and the availability and prices of materials and labor. Start exploring your options today!
Regarding construction loans, lenders face unique challenges due to the collateral being a vacant lot and borrower equity rather than an established asset like a finished home or commercial building. Lenders must have confidence that the property will hold up to its original appraisal and that the construction can be completed within the projected budget. Furthermore, the contractor’s character and credentials must be validated to ensure they can complete the project successfully.
Lenders must establish strict inspection and fund control protocols to prevent the risk of mechanics liens. Suppliers or subcontractors can file these liens if a contractor fails to pay them, leaving lenders to bear the financial burden. To avoid this risk, lenders must ensure that construction is proceeding as scheduled, appropriate suppliers and subcontractors are being paid, and draws are not made before the commensurate amount of work is completed.
Different markets and market forces can also affect the risk of construction loans. Mechanic’s lien regulations vary from state to state, and the cost of materials can significantly impact project budgets. For instance, tariffs in 2018 led to a 9.6 percent increase in construction material costs, potentially causing subcontractors to default and the entire budget to fall apart. To anticipate these risks, lenders must have a deep understanding of real estate cycles and demand for new developments in a given area.
A construction loan can provide the necessary funding if you’re considering building a home in South Florida. As per the Consumer Financial Protection Bureau, construction loans usually release funds in a series of advances to cover expenses during the construction process.
Depending on the situation, the loan may automatically convert into a long-term mortgage or remain a short-term loan for construction purposes. However, several other financing options are available for building or renovating your home, including land loans or complete home remodel loans.
At Us Invest Financial, we offer end loans too, which provide permanent financing after the construction process is complete.
Let us help you find the right financing option for your unique situation.
Design and construct your own home according to your unique preferences. From selecting the ideal hue of paint to complement the intimate ambiance of your living space, to incorporating soothing and warm lighting fixtures for a tranquil atmosphere in your sleeping quarters, the possibilities for personalization are endless.
Do you need home office space? Maybe a fitness area? A private cinema? Go for it! The possibilities are endless!
Building your own home can lead to a significant reduction in energy costs. Using the latest energy-efficient building systems and materials, you can create an eco-friendly, cost-effective, and environmentally conscious structure. Additionally, a newly built home typically comes with many of its systems warranties, reducing the likelihood of maintenance and repair issues.
With many variables like the builder’s cooperation, getting approvals from local municipalities, and more, these are considered higher-risk loans. This means they’re harder to qualify for, and the interest rate will likely be higher than a traditional loan. In addition, if you decide to go this route, you’ll have to pay a second set of loan fees when you apply for a traditional mortgage.
Construction-to-permanent loans are a financing option that prospective custom home builders can apply for. Like construction-only, construction-to-permanent financing is a one-time loan that funds construction and then converts it into a permanent mortgage.
These types of loans can be much more expensive than traditional mortgages, so if you decide to go in this direction, shop around, compare rates, and find the best deal before you pull the trigger. You may qualify for a VA construction loan from the Department of Veterans Affairs (VA) if you’re an active-duty service member or veteran.
Usually, when you build a home, a general contractor essentially acts as head of the whole operation. They make sure the framing people, the tile people, the wood floor people, the painters, and so on all work in coordination to get your home completed (ideally on time and within your budget).
However, some prospective home builders wish to act as their own general contractors, and some banks offer owner-builder loans just for this purpose. These types of loans generally require the borrower to demonstrate experience, education, and licensing.
They can be used for home renovation and are insured by the Federal Housing Administration (FHA). This allows borrowers to purchase and renovate their new homes while making one monthly payment to cover both costs. Conventional loan borrowers may qualify for these loans through Fannie Mae (HomeStyle Renovation) and Freddie Mac (CHOICE Renovation).
Some borrowers don’t like this loan and choose a cash-out refinance, which can be a different path to renovating homes. With a cash-out refinance, you take a portion of your equity and add what you’ve taken out onto your new mortgage principal. Other options include a home equity loan or a home equity line of credit (HELOC).
An end loan is a traditional mortgage loan that a home buyer or builder (if you’re building your own home) can apply for after the new home is constructed. You can get an end loan if construction is complete on the home. One good aspect of an end loan is that the mortgage application for a newly constructed home is the same as it is for any other home. Less complicated is always appreciated when it comes to financing applications.
