We’ve worked with 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. Financing the construction is the other half of making it a reality.
The quick answer to that question: A new home construction loan.
Of course, mention of this loan type spurs other questions. Let’s dig into financing a custom home build with a new home construction loan.
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. They’re the most common way future Barden homeowners fund their projects.
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 two parts, with the latter contingent on the former:
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Typically a short-term loan and with a higher interest rate, construction loans pay exclusively for building a home. They cover all construction-related project expenses, from putting in the foundation to installing the roof trusses. Construction loans do finance other costs of a custom home project, such as purchasing a lot or landscaping.
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 are responsible for making interest-only payments to your lender while your home is completed.
A loan structured with fewer draws may leave you responsible to pay contractors upfront until the required milestone is met to release the next draw. Working with the right lender and understanding your options is key!
Construction 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 or modular construction, 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. Building with panels can shave weeks off your project.
Further reading: Take a behind-the-scenes look at how we manufacture panels in our factory.
Like any major project, there are variables that impact construction time, such as weather conditions and contractor availability in your area. Remember, the less time spent building your home is less time the construction loan has to accrue interest.
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Upon completion of construction, the construction loan is converted to a typical amortized mortgage (permanent financing). You'll pay principal and interest through the duration of the 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 up to four 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. There are many out there for almost every purpose. However, there are plenty of reputable and established third-party lenders that focus strictly on loans for new custom home 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. The last thing a new custom homeowner wants is to be saddled with a long-term loan that makes life harder.
Don’t be afraid to ask a lot of questions and request references from your local dealer -- there’s no shame in doing your due diligence to make sure you’re getting a loan you can live with.
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.
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 have to live in your new home, after all.
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.
Want to learn more about financing a custom home build? Our Custom Home Financing Guide is a great next step. It takes a deeper dive into: