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Six Ways to Finance Building a Home

June 29, 2022 by in Construction Loan

Building a new home is a goal for many individuals, and in situations where it’s difficult to find an appropriate home on the market, building a new construction might be the best option. Many individuals hoping to build their own homes aren’t aware of all the new construction financing available to explore.

Let’s take a brief look at six ways to finance building a home.

#1- Selling an Existing Property

Some individuals choose to sell an existing home in order to fund the construction of a new home. If circumstances allow a homeowner and their family to reside in temporary housing (ex: extended stays with family), this is one of several construction financing options to consider. Once the home is sold, the previous owner can use the funds to build a new home.

#2- Remortgaging an Existing Property

This method of new construction financing doesn’t apply to everyone, but for homeowners who have accumulated significant equity in an existing property, remortgaging might be a path to consider. By remortgaging one home, the owner may be able to finance the building of a new home. Of course, once the new home is ready to move into, the owner might want to sell the previous property so that they aren’t paying for two mortgages.

#3- FHA or VA Construction Mortgage Loan

For individuals who are exploring how to build a home if they don’t have assets to sell. There are requirements that need to be met for this type of loan to be approved (credit scores, down payments, etc.).

With these types of loans, the lender provides the borrower with enough money to buy a plot of land and fund the home’s building. When the build is complete, and the owner moves in, the loan behaves as a standard mortgage loan.

#4- USDA Construction Mortgage Loan

A USDA construction loan is similar to an FHA or VA construction loan in that borrowing requirements need to be met, but there are a couple of differences to note. For example, these loans don’t typically require a down payment, and the interest rates for USDA loans are lower than interest rates for FHA and VA loans.

#5- Hard Money Lending

This type of loan might be a good idea for individuals who plan to use the property they purchase as collateral. With hard money lending, if the borrower defaults on the loan, the property and the constructed home is seized by the lender. Unlike traditional loans, this type of loan is ideal for individuals who may not have a lot of income but have assets and other financial resources.

#6- Cash Funding

With the cost to build a home is relatively high in some situations, using cash to finance the construction of a home isn’t an option for everyone. However, for individuals who have enough money in their possession, cash funding might be a good construction financing option. By using cash, there’s no borrowing involved, no lending fees, and no interest rates.

If you’re hoping to build your own home, exploring your financing options is a good idea. By researching the pros and cons of each financing type, you’ll be better able to decide on a strategy that applies to your unique situation.

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