Besides the satisfaction of finally building your dream home, home ownership comes with several different benefits. It offers financial stability, a strong asset to give you financial flexibility in the future, tax benefits, and the security that comes with enjoying a permanent resident of your own. However, for most people, building a new home is most likely going to be the largest expense of a lifetime. Unless you have hundreds of thousands of dollars in savings, seeking out a home loan for construction is most likely the easiest pathway towards homeownership. In this short article, we briefly explain what future homeowners in Western New York should look for when evaluating the best loans to build a house.  

Differences between a Mortgage and a House Building Loan

To begin, it is important to understand the difference between a construction loan and a traditional mortgage. A construction loan is generally a short-term loan (usually for 1-2 years) that is specifically destined to cover the expenses of building a new home or residence. The future homeowner takes out this type of loan to gain quick access to funds in order to cover the construction project. In most cases, the homeowner then refinances this construction loan into a longer-term loan (such as a mortgage) to pay off the cost of the new home construction.  

Mortgages are much longer-term loans, with the 30-year mortgage being the most common for homeowners. Mortgage payments consist of payments on the principal or the original amount borrowed, plus whatever the interest rate is for your particular loan. According to the U.S. Census Bureau, 63 percent of American households carry a mortgage, with the average American owing $215,655 as of 2020.  

The main difference between a construction loan and a mortgage is the length of the loan. Furthermore, with a mortgage, the money you are lent is paid out in one lump sum, whereas construction loans are generally interest-only payments based on the amount you have advanced on your loan.  

What to Look for in the Best House Building Loan?

Though many people may think that taking out a mortgage is the best way to pay for a custom home, mortgages are generally only issued by banks when purchasing an existing home. If you prefer to build a custom estate, you will need to find a bank willing to get you the needed funds to cover the cost of building. This is known as a construction loan or house building loan, and the funds are specifically given to finance the construction of a home.  

When searching for the best house building loan, it is generally a good idea to find lenders who specifically state that interest on that loan is only paid during the construction period. Furthermore, you will also want to find a lender that is able to get you the funds in a timely manner throughout the construction process of your custom home. Having to stall the building process because funds are not available can increase the timeline of your custom estate construction, and may even increase the overall price.  

Lastly, it is also a good idea to search for lenders who can also convert your construction loan into a longer-term mortgage so that you can start the process of paying off the new custom home you just moved into.

Natale Builders is proud to be the leading custom home builder that specializes in helping homeowners in western New York plan and build a home that a custom home that will last for a lifetime. Our custom homes are built to the highest standards, and incorporate the highest quality materials and construction practices. We have over 50 years of experience in building custom homes, and we are also proud to be an industry leader in Energy Star and Green Build designs for homes and neighborhoods in Western New York.  

Furthermore, we understand that finding financing for custom home builds can be a struggle for future homeowners. When you hire us for your custom home build, our team will work with you to develop a detailed building timeline and a thorough budget to help you in your quest to find the best construction loan. Contact Natale Builders today to get started planning your future custom home.