Our Guide to Construction Loans & New Home Mortgages
Designing and personalizing your dream home is fun and exciting. But getting down to the nuts-and-bolts of pricing and paperwork may feel like the opposite.
If this is your first time building a home, the financing process may seem especially intimidating. At KRM Custom Homes, we don’t believe it has to be. When you partner with us, we work to make it as smooth as possible for you. Here’s a quick guide to the basics of financing a new home build in Central Iowa and how we make the process as simple as possible.
The Basics: Lot Loans, Construction Loans & Mortgages
Building a new home is different from buying an existing one. When you buy a home that’s already built, you get a mortgage from a lender — one lump sum payment that goes directly to the seller. Then, you start making monthly payments on that loan.
When you build a home, there are often a couple of extra steps. That’s because there isn’t an existing home yet to finance! These extra steps are the lot loan and the construction loan.
Lot Loans
The first step to building a home is choosing the right lot. A lot loan is a form of financing that helps you purchase the land where your home will eventually sit. Compared with a traditional mortgage, these loans are often shorter, have higher interest rates, and require a larger down payment. That’s because lenders see raw land as riskier since there’s no house on it yet.
Construction Loans
A construction loan also operates differently from a mortgage. It often only lasts for a year or two. And unlike mortgages, which are one-time payments, construction loans are paid out in “draws.” That means the construction company receives payment at important milestones of the homebuilding process. This protects your investment to ensure the home is fully completed before you provide full payment.
Once your custom home is complete, that construction loan “converts” into a regular, long-term mortgage. So, you only have one loan to worry about in the end.
Want to Skip the Lot & Construction Loans? Work With KRM
You may not need to worry about taking out a lot loan or a construction loan when you work with KRM Custom Homes. If you’re building on one of our existing lots, we can carry the financing for you throughout the build. That means all you will need to worry about is securing your home mortgage — eliminating these other two steps entirely. One home, one loan!
However, if you want to build on a different lot, such as a rural area, or if you want to own the land yourself during construction, you will need to carry the financing. Whoever holds the financing must own the land.
The KRM Home Financing Process
When you work with KRM, how does the financing process typically work? Here are the main steps.
1. Initial Homeowner Meeting
From the start of the project, we’ll be clear on your options for financing your home build. We touch on financing during our initial consultation, when we learn more about your vision and budget.
2. Pricing Meeting
The second step in our homebuilding process, the pricing meeting, will help you fully understand the projected cost of your build. It will also give you an idea of how much you will need for financing.
3. Securing Financing
Before bidding and construction can begin, you must secure the financing for the project. Many of our customers use local or national banks, although some are able to pay the full price themselves. KRM provides your lender with all the detailed plans, specifications, and accurate cost breakdowns they need to approve your loan quickly. Need help exploring financing options? We can connect you with our preferred lender or help you explore additional avenues.
4. Home Complete, Payments Begin
If we are carrying the financing, your payments will begin after you close on your home and your mortgage is in place.
Finding the Right Fit: Our Preferred Central Iowa Lender
KRM Custom Homes will work with a variety of lenders. One of the easiest, most affordable, and most convenient ways to finance your home is working through our preferred lender: Community Choice Credit Union.
KRM has a long-established relationship with Community Choice, which has locations throughout Central Iowa. Working with them means you’ll be working with a lender who:
- Knows our process. We work frequently with Community Choice Credit Union, making it smooth from start to finish.
- Has the metro’s most competitive rates. You’ll benefit from some of the best interest rates you can find in the Des Moines metro.
- Provides flexible loan options. From conventional loans to Federal Housing Administration (FHA) and Veterans Affairs (VA) home loans and more, Community Choice provides many options to help you find the best one.
By providing a preferred lender, our goal is to help you find the product and approach that is going to be the best for you. Mortgage financing is not one-size-fits-all. Community Choice Credit Union will take your information and provide full details on your options to help you find the best program for you.
Dig Deeper: Navigating Interest Rates & Timing
Want to dig deeper into navigating fluctuating interest rates and timing your home purchase? Watch our conversation with Shannon Thome, a mortgage loan originator at Fortress Bank.
Have Financing Questions? KRM Custom Homes Is Here to Help!
KRM Custom Homes is dedicated to making your dream home an achievable reality. Whether you’re ready to start the process or still have more questions, our team is ready to talk with you. Contact us today to learn how we can help!
