Ask the Expert

We are looking at a builder who has a lovely model we would love. Are there any differences in getting financing to build a home versus buying an existing home?

	Yes, there are some differences but the process shouldn't be too painful.
	New home construction is financed in three key ways:
	1 The builder finances the construction.
	2. The buyer gets a construction loan and then a permanent loan that pays off construction.
	3. The buyer gets a combination construction and permanent mortgage.
	You should investigate all three, because each have advantages.
	According to the Mortgage Professor, builder-financed construction can be preferable because the buyer only has to take out one loan.  You can be sure if the builder is willing to finance construction that the company has the financial capacity to complete the project.  In addition, the builder is highly  motivated to complete the project and is taking the risk that the project will be finished on time.
	If you own land for your house, the builder will have to take title to the land. That can be expensive in some areas.
	Also, don't expect a builder-financed project to be modified, at least not much.
	If you take a construction loan yourself, you will find that a higher down payment is required with higher interest rates. These construction loans can be much more difficult to qualify for and you'll need your building plans, construction contract and cost estimate when you apply.
	Combination loans have the advantage of shopping for a loan only once and paying only one set of closing costs, but this type of loan can be complicated and expensive.