Building a custom home is a fun and exciting process. However, there are a lot of things that you should know before you begin a construction loan to avoid unnecessary headaches along the road to building your dream home.
To help you navigate the construction loan process we’ve put together a short list of do’s and don’ts to help make your experience a positive memory.
Construction Loan Do’s
- Hire a qualified, licensed general contractor. Communicate your expectations to your contractor. Discuss change order cost and overruns.
- Plan carefully as you work on your plans, bids cost and what is included in the bid. Don’t assume anything – always ASK.
- Keep the lender informed of material changes, like unexpected costs, issues or delays.
- Monitor and manage your construction funds carefully as problems are easier to manage if discovered early. Have lien waivers completed and submitted to the lender as work is being completed. Title insurance with mechanic lien coverage is required on your end loan.
- Plan on completing the entire project per the plans and specifications that you provided to your lender. The appraisal was based on those plans and specifications.
- Have 15% in cash reserves available if needed to complete the project.
Construction Loan Don’ts
- Do not begin construction until after the loan closing. This includes any ground clearing or excavating. Early-start coverage might need to be requested from the title company if construction has been started.
- Do not take out any additional loans or credit lines during the construction period.
- Do not take out any additional loans to assist in completing your home without lender’s approval during the construction phase.
- Do not change employment (or become self-employed) during the construction period.
- Do not have any late pays on your existing debts during the construction period.
Final Thoughts about Construction Loans
While building your custom home is exciting it can also be very stressful. It’s very important that you keep in communication with your lender during the project. It is also key to have an open dialog with your contractor regarding timeline, cost vs budget, change order cost and any concerns that you have regarding the project. You want to be able to enjoy your new home for many years.
When you are ready to start building your custom home, please give Mid America Mortgage a call and let us put our years of experience to work for you.