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3 Keys to Building Your Dream Home

Concrete trucks and workers pouring a house foundation.
 
You have filled pinterest boards or bulging folders with the perfect floor plans, doors, trim, flooring, and light fixtures for your dream home. You have built a great credit score and can not wait to see excavators moving dirt. But what can you expect regarding the construction loan and building process?

What is a construction loan?
A construction loan is a short-term loan, generally 9-12 months, that pays for the building of a house. The lender pays out the loan funds in stages as the building progresses. Inspections of the building site may be required before funds are released for use.

The borrower is only required to make interest payments during construction. The rate on the loan may be higher than a traditional mortgage due to increased risk a financial institution takes when making these types of loans. Once the construction is complete, the construction loan will be rolled into a traditional 15- or 30- year mortgage where regular interest and principal payments are made.

New home construction is a rewarding, but challenging process. Here a few tips from Friendship State Bank lenders for the process.

1. Communicate. Communicate. Communicate.
Be up front and honest about your plans with your lender from the start. Ask lots of questions to ensure you understand the process for accessing your loan funds. This will make getting the money you need when you need it easier.

It is critical to be in constant contact with your contractor regarding your construction timeline, decisions that need to be made, your desires, and other details regarding the progress. Assume nothing. The new home construction business is booming and many contractors are working on multiple projects at once. Expect to be the one to initiate communication with your contractor.

Review your contract often and touch base with your contractor and lender if you notice any changes. Sticking to the contract will help prevent unnecessary delays and headaches.

2. Verify that your contracted allowances are realistic for your wants.
A contractor’s quoted price will include budget allowances for different aspects of the house - doors and windows, flooring, cabinets and hardware, faucets, and so on. Make sure the allowances are enough to cover the quality of products you want in the house. Imagine the disappointment discovering you were only budgeted for the lowest quality window line available when you wanted a high quality, energy efficient option.
 
Having a cash reserve set aside in a savings account is also helpful in covering unforeseen costs. This cash can also allow you to upgrade if you fall in love with a cabinet style or light fixture that is more than the allotted amount.

3. Expect the unexpected.
Everything from weather to contractors can and will be unpredictable. When delays arise, keep it all in perspective. The frustration of an untimely delay is easier to accept when you consider a lifetime in your dream home. Building a home and working with a team is not easy, but keep your eyes on the prize. The pay off will be worth it when you cross the threshold of your finished home for the first time.

Friendship lenders are great resources for information. They see the best and worst case scenarios and have gathered a wealth of knowledge during their careers. Call 812-667-5101 to schedule a free consultation today.