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Are you simply not finding the home of your dreams among houses currently on the market? You may want to buy a lot and build your own. Buying land and building a new house has a few extra considerations, so here’s what you need to know.
It can be harder to get a loan for buying undeveloped land or a lot than to get a mortgage, especially if you aren’t building immediately. These types of loans usually require a higher down payment and have a shorter term, since the lenders will consider them higher risk.
It’s easier to get a loan for land or a lot if you plan to build immediately. This allows you to get a construction loan. There are two main types of construction loans:
With a standard short-term construction loan, you get an initial loan to cover costs of buying your land and pay for construction, but as soon as construction is finished you must apply for a new loan. The new loan is a traditional mortgage and it pays off the construction loan. A disadvantage of pure construction loan is that interest rates are typically high, and you’ll have to pay closing costs both for the construction loan as well as the mortgage needed to refinance the construction loan. This opens up the risk of qualifying for a traditional mortgage when your home construction is complete. What if you lose your job or decide to start your own business? These are both big issues when applying for a mortgage. The other risk is what if rates go up between the start and completion of construction. Interest rate risk works both ways but it could lead to a big surprise if rates spike.
An all-in-one loan or construction to permanent resolves the issues with a true construction loan by making the transition from construction phase to regular home mortgage seamless. Instead of having to undergo a refinance process that includes requalifying for your mortgage, there is a simple conversion process that allows you to shift from the construction loan into your mortgage setup without going through approval and closing again. The benefit to this is you only pay closing costs once and you eliminate the risk of rates moving higher during your build. The downside to these programs is you’ll generally pay above market rates and closing costs.
Think carefully about your decision, and consider finding a real estate agent that specializes in land purchases to help you if you decide to buy a lot or piece of land. Then choose a mortgage company that can help you get preapproved for the right kind of loan to make your dreams come true.
We’ve fine-tuned the preapproval process to make it one of the easiest experiences you’ll have in the whole home buying process. Buying a home should be fun and exciting, not stressful. Get preapproved today!
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.