Building a Home

Most Common Financing Questions

When it comes to building your dream home, there are a lot of decisions to be made, including the best way to pay for it. These are the most common questions and answers about construction financing.

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The location has been chosen, you’ve picked out your plans, and the color schemes have been narrowed down to a handful of choices. The time has come to build your dream retirement home. Now all that’s left is figuring out how to pay for it.

Nick Kristoff, with the Kristoff Team in Bluffton, SC, has spent years working with clients at every stage of the home construction process. Here are just a few of the most common questions Nick has been asked over the years.

What are my first steps to getting a construction loan to build a home in the Lowcountry?

Whether you already have your lot and builder selected, or you are just starting the process of looking, talking with a lender is the most important next step. We can help you determine the maximum loan amount available (80% typically, however, we can lend up to 90% of the total project value) and the corresponding payment. If you are just starting to look, we can help you select a lot and construction price to meet your budget. Or, if you already own your lot and you’ve selected your builder, we can help you determine the down payment amount required, and how the lot equity and deposits will be credited.

Finally, the sooner we are involved in the planning process, the easier it is to ensure your financing timeline matches your builder’s timeline.

If I already purchased my lot, can I use it as equity?

Absolutely! The lot equity can be used towards the down payment required for the construction loan. In many cases, the lot equity may meet the entire down payment requirement, and we can lend the full amount of the contract with your builder.

At what point do I have to put money down?

Any down payment requirement must be satisfied at the time of closing, which is typically the start of construction. Any lot equity or upfront deposits paid to your builder for items in your contract will be credited towards the down payment. Any remaining amount due will be collected at closing.

Some of our clients plan to put down a large sum but would prefer to put the money in closer to the end of the construction process. Since all the funds needed to build the home must be accounted for at the time of closing, we have accommodated that request by working to approve the borrower for a larger loan amount, therefore reducing the amount of cash needed at closing. At the end of the construction process the borrower simply uses his or her own funds to pay the builder prior to the loan entering the permanent phase. Since the borrower doesn’t use the total loan amount approved, the final loan balance and payment is adjusted down.

PRO TIP: In general, if you pay for an item upfront that is included in your building contracts (General Contractor, dock, pool, etc.), then that deposit will be credited toward your down payment.

If I still own a home, will it be more difficult to finance the construction of a “second home”?

Not necessarily. Most of our clients own a home while they are building a new primary residence or second home. The process for approval is identical. We’ll simply include the expenses from your current home in the qualification process to ensure approval with both homes. If your current residence happens to be sold prior to the closing on your construction loan, the expenses related to that property can be removed from the qualification.

Will it be a difficult process to manage remotely?

No. The mortgage process is easy to complete remotely. We work with the majority of our clients remotely. Managing a construction project remotely doesn’t have to be difficult either.

Each time a new draw is requested by your builder, we will obtain an inspection report detailing the progress. This ensures you’re only paying for work that has been completed on your home and guarantees there will be enough remaining in the loan to complete the project.

Additionally, many builders in our market are accustomed to working with remote clients. Like us, they offer eSignatures and they will send picture “progress reports” to their clients along the way. All parties have a common goal of making sure the client is protected and happy throughout the process.

If you’d like to discuss construction financing, or if you have any other questions about financing your new home in the South Carolina Lowcountry, call us at 843-603-5924 or email nkristoff@gmmllc.com

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