We’ve worked with a great many customers to design and build their dream home -- one that meets all their needs while staying within budget.
But in our countless discussions with future homeowners, the most common question we get is: “This sounds great, but how do I pay for it?”
A natural question, indeed. Building a custom home is typically a once-in-a-lifetime experience. Paying for its construction is the other half of making it a reality.
The quick answer to that question: A new home construction loan.
Financing Your Custom-Built Home: A Two-Part Process
If you’re like the majority of Americans, you probably don’t have a bank account with a six- or seven-figure balance. And it certainly doesn’t replenish itself.
In other words, you’re probably not going to be your own financier when it’s time to fund the actual construction of your next home.
New home construction loans are a great way to help pay for your custom home and get work started.
Most lending institutions offer financing options for home construction, though the terms and details may vary. For the most part, construction loans cover the basics of building your home, covering the start-up capital needed to get things moving through what eventually becomes a long-term loan, such as a mortgage
In general, new construction home financing is done in 2 parts, with the later contingent on the former:
- Construction loan
- Traditional mortgage
1. Construction Loan
Construction loans are typically short-term and have a higher interest rate. As its name indicates, a construction loan exclusively pays for building a home -- from the putting in the foundation to installing the roof trusses.
Funds are released in installments, called draws, upon completing construction milestones. There can be anywhere from two to 10 draws allotted in a construction loan. You accrue interest on the funds that are disbursed and will be responsible for making interest only payments to your lender until your home is completed.
A loan structured with fewer draws may leave you responsible to pay contractors up front until the required milestone is met to release the next draw. Working with the right lender and understanding your options are key!
These loans are issued with a time limit, usually around 6 months, to complete the project. Just like selecting a lender, choosing an experienced builder or general contractor is necessary to make sure the project is completed on time.
Compared to other methods, such as stick building, Barden’s panelized home construction makes for a more efficient and faster build. Most of the “heavy lifting” is done in our factory where the panels and trusses are made as your site is prepared. Once the materials are delivered to your lot, it usually takes between 4 and 6 months to build your homes. Like any major project, there are variables that impact construction time, such as weather conditions and contractor availability in your area.
The speed in which we build your home can lead to less time accruing interest on the construction loan.
2. Traditional Mortgage
Upon completion of construction, the construction loan is converted to a a typical amortized mortgage that you pay principal and interest on.
Where Can I Get A Construction Loan
Not all major banks offer construction loans. Many of our customers who have secured a construction loan through a bank are using local or regional institutions.
Banks that do offer construction loans usually only include 2 - 4 draws into their packages, putting a financial strain on the customer.
Outside of the banking system, another place to turn for a construction loan is a third-party lender. Finding a third-party lender can be tricky as there are many out there for almost every purpose. However, there are plenty of reputable ones out there that focus on loans for new construction. Just like evaluating a bank’s construction loans, it’s important to spend time analyzing the terms and conditions of a third-party lender’s loans. Don’t be afraid to ask a lot of questions and request references -- there’s no shame in doing your due diligence to make sure you’re getting a loan you can live with.
Creating a Home That Meets Your Budget
As a company with decades of experience in the home building business, we love helping future homeowners create their next home.
There are a lot of variables that determine what the cost to build a custom home ends up as. Working with our team, you’re in the driver’s seat with many of the factors comprising the final price tag.
Our team of in-house designers and our Barden Independent Dealers are happy to work with you to come up with a home that meets your budgetary considerations. We’re even willing to look over plans created by someone else that are outside your budget and explore options to align it with what you’re willing to spend.
Funding Your Custom Home
Building a custom home is a significant undertaking. And all of the elements that go into taking it from concept to reality are things you want to get right the first time -- you will be living in your home, afterall.
Just like working with reputable contractors and dependable suppliers, securing financing that meets your needs is one of the most important parts of the home-building process.
Download the Financing Guide
PrimeLending is one of many options available to finance your home’s construction. Check out our guide on what they offer. It covers:
- How the new construction loan process works
- How your home builder/Barden dealer gets paid
- A construction timeline to walk you through the process
- And more!