New home construction loans are typically either provided for a home builder that is building out lot inventory for the purposes of resale, or for a self build scenario where the eventual home owner finances the project all the way through construction.
For home builders, new home construction loans will require the builder to provide home owner insurance and have sufficient equity in the project to support the construction loan amount. If the builder owns a number of lots or even additional property, a lender can take real estate that is unrelated to the construction project as security.
The key elements for home builders is the equity they have in the project or can provide in the form of other real estate security, and the sale status of the home being built. If the home is pre-sold subject to the completion of construction, there are going to be more construction financing options available versus scenarios where builders are creating inventory for future resale.
For self build scenarios, new home construction loans can be secured through major banks and mortgage companies provided that the borrower is able and prepared to qualify for both the construction loan and the long term take out mortgage at the same time.
For the most part, banks don’t do construction loans unless they can get the long term mortgage asset as they are otherwise not interested in the risk associated with construction projects.
If a self builder can’t qualify for both construction financing and take out loan through their bank or similar institution, then they can apply for a new home construction loan via a private lender.
This can also be a benefit in that the private may be able to provide a higher loan to value ratio than the bank and the private lender may not require you to have the take out mortgage in place before construction begins, giving you more time to shop around for the best deal.
If you’re a builder, developer, or property owner looking to do a self build project for a new home, give me a call so I can quickly assess your requirement and provide relevant new home construction loan options for your consideration.