Financing a New Construction Home in West Michigan
Financing a New Construction Home in West Michigan
Direct answer: For West Michigan buyers building a new home, financing a new construction build is not like financing an existing home — the loan, the down payment, and even who funds the build depend on the builder and the bank.
Show me the money
The first question with any new construction home is simple: where are you going to pay for it? And lending for new construction is not as easy as you might think.
The familiar loans do not always apply here. The 3.5 percent FHA loan or the 5 percent down conventional loan does not always come around for a new construction build. There is a lot more that goes into construction financing.
Every bank has different rules
Construction financing comes with its own process, including lien waivers. And each bank has different rules and regulations.
One bank might require 20 percent down. Another might require you to own the land beforehand. It just depends — on the bank, and on the kind of builder you are working with.
The builder changes the financing
This is the part buyers miss: some builders are able to finance the house during construction, and some builders require you to get a construction loan.
So as you go through the process, the questions to ask are: do you have the money to fund it? Is a construction loan a good thing for you? Or should you be building with somebody who ultimately has the financing for you?
That choice — builder-financed or buyer-financed — shapes the whole build. Sort it out before you commit to a builder, not after.
Key takeaways
Financing a new construction home is different from financing an existing home — standard low-down-payment loans do not always apply.
Construction financing involves its own process, including lien waivers.
Each bank has different rules: one might require 20 percent down, another might require you to own the land beforehand.
Some builders finance the house during construction; others require you to get a construction loan.
Decide whether a construction loan is right for you, or whether you should build with a builder who has the financing.
FAQ
Can I use a 3.5 percent FHA loan or 5 percent down conventional loan for a new construction build?
Not always. Those loans do not always come around for a new construction build, so do not assume your financing carries over from an existing-home purchase.
Why does the down payment vary so much for new construction?
Because each bank has different rules and regulations — one might require 20 percent down, another might require you to own the land beforehand — and the builder you work with changes the picture too.
Do all builders require me to get a construction loan?
No. Some builders are able to finance the house during construction, while others require you to get a construction loan. Ask which one you are dealing with before you commit.
West Michigan New Construction FAQ Series
Financing a New Construction Home — you are here
Can You Build Some Yourself?
What Is a Semi-Custom Builder?
What Kind of Builder Are You Looking For?
What Is a Production Builder?
Finding Land
How to Interview a Builder
How Long Does It Take to Build a House?
Price Per Square Foot
Custom Builder
Watch me explain it
Here is an older video of me explaining the process. It might be older, but the info still rings true.
Watch on YouTube: https://www.youtube.com/watch?v=Z9A0JahsLmI
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Author: Steve Volkers, Associate Broker, Steve Volkers Group at Five Star Real Estate, Grand Rapids, MI — phone 616-717-2179, stevevolkersgroup.com
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