Southern California Home Construction Mortgage Options

If you are intending to build a new home versus buying a resale, it is important to learn about the mortgage options available. Financing new construction is very different than purchasing an existing property. The conditions, rates, and processing can vary. Here are a few common Southern California home construction mortgage options.

Construction Loans

Construction loans are short-term loans designed to disburse necessary money during the construction process. There is normally a schedule for when funds are released and in what amounts. Specific milestones must be accomplished for release of funds to the builder. The expenses, interest calculations, and other terms will differ by lender. Construction loans are considered high risk, thus requirements are generally more intricate than regular home mortgages. When construction is concluded, a separate mortgage must be obtained.

Convertible Loans

Construction to permanent loans require a single closing. Throughout the construction phase, interest-only charges are usually required. Once building is completed, the mortgage converts to a normal mortgage with customary monthly payments. Interest rates are often set when you first start the process, however the lock for the permanent segment of the loan can have a deadline. If your house is delayed, then your rate for the permanent loan may adjust.

Builder Financing for Home Construction

Builder financing is the most ideal option for buyers because no special loan is necessary by the home buyer. Home buyers are typically required to give a higher deposit and to cover the cost of upgrades ahead of time. Buyers must have a loan before taking possession.

Southern California Home Construction Mortgage Options

Mortgage options on the market will depend on who owns the lot. Self-owned lots typically require a construction loan or construction to permanent loan. Builder financing is generally available when purchasing in a subdivision. Programs can also vary by mortgage company as some maintain unique programs. Speak with your lender to find out about all of the different Southern California home construction mortgage options and related costs prior to selecting a particular option.