If you are building a new home rather than purchasing an existing home, the loans you need to acquire to finance the construction and then the mortgage of the home are different than a traditional home mortgage. It can be a complex process to understand, and requires some thought regarding the approach you want to take. When developing a design build in Austin, TX, you need to consider your timeline for the project and the budget you have set forth.
Design build loan options
Unlike a traditional mortgage, for a design build in Austin, TX, you will need to secure a construction loan. While with a traditional mortgage you pay interest and monies towards the principal each month, a construction loan acts as a line of credit from which you make draw requests for the amount you need for the length of time designated for the construction of your home. During this time, you only pay interest on the amount you have borrowed.
Once your design build in Austin, TX has been completed, you will need to convert your construction loan to a mortgage loan for the full amount you have borrowed to complete your home. Interest rates for your loan are calculated by looking at your credit, income, financial history and the amount of equity being created in the home you are building.
Depending on the size of your construction loan, you will receive either a conforming mortgage or non-conforming mortgage. A conforming mortgage is for less than $417,000, and finding a lender for this is typically pretty easy. A non-conforming mortgage is for more than $417,000, and it can be trickier to find a lender that will fund your project, as the rules for this size loan are stricter.
Types of construction loans
When securing your construction loan, you will be able to select between a one-step and two-step loan. With a one-step loan, you will use the same lender for both your construction and mortgage loans, closing on both loans in one step. This type of loan relies on the fact that you know exactly how long your design build in Austin, TX will take, and exactly how much it will cost. There is no amount of flexibility in terms of time or loan amount, requiring you to be certain on the terms of your home project.
A two-step loan is more flexible as it splits the construction loan and mortgage into two separate transactions. You complete the construction of your home, and then close on a mortgage. A two-step loan is also more accommodating to the final cost of the home, allowing you to make additional changes as you go. Time is also more flexible, giving you the ability to take more time to complete the construction of your home in case of delays.
Navigating the financial waters of a design build in Austin, TX will be easier if you know the basics regarding the options that are available to you for lending. Make an appointment with Watermark & Company to discuss your design build or remodel project. We are a locally owned and operated general contractor in business since 2004.