You have explored all that the Florida market has to offer today’s home buyer, and you have decided to purchase a home that will be built to your specifications. You have chosen your home builder and the site for your new home. You have explored floor plans and options, and have a good idea of what you want. Now it’s time to explore your finance options.
The first step
Today’s Florida home buyer has several finance options available. Your first decision will be whether to set up a cash escrow account, or to obtain financing in the form of a loan. If you choose to obtain a loan, you must decide whether to go through a lender, or to obtain a builder’s loan from your builder.
Cash funding for new construction
Because you won’t be paying any interest on a loan, cash is most cost efficient method of funding your new Florida home. The procedure for cash financing is very simple. First, an escrow account is opened with a licensed Florida escrow company and the cash funding for your new Florida home is placed in this account. During each phase of construction, payments are made to your builder from this escrow account. The escrow company protects your interests and theirs by hiring inspectors to verify that each phase of work on your new home is complete before payment is made to your builder. When you set up a cash escrow account in this manner, the home site and home are deeded to you, the buyer, from the date the home site is purchased.
Obtaining a loan
A Construction Permanent Home Loan is the most commonly used funding method for new home construction. With the exception of cash, it is the most cost efficient method of financing your new Florida home.
The initial stage of this finance method is similar to the cash escrow, wherein payments are made to your builder at each phase of the construction process. When your new home is complete the loan automatically converts (or modifies) to your permanent home loan.
This loan type has all the typical closing costs of a traditional loan, with one key difference. With a Construction Permanent loan you will pay interest on your home site and on the money that is disbursed to the builder for each phase of completed construction. This means the interest paid will start very small and increase with each payment made to your builder during construction.
When one uses this finance method the home and home site are deeded in the buyer's name from the date the home site is purchased. When your new Florida home is complete, this loan will convert to your permanent loan with traditional interest payments.
Finding a reputable mortgage lender and choosing the right loan
If you choose to obtain financing from a lender, you will need to find a mortgage specialist who will go over all of the loan options available to you. This is important because when it comes to home loans, there is no One Size Fits All.
Based on your income level and time you plan to live in your new home, your mortgage specialist can help you decide whether to choose a fixed rate, variable rate, or interest only loan. Be sure to explore each option carefully and choose the best option for your individual needs.
Financing through your builder
This is the most expensive method of funding the construction of your home. Most builders maintain large credit line to offer builder funding to their customers. The credit line has closing costs and interest that has to be paid for each home utilizing this method of construction funding. The builder then passes on the expenses incurred, including closing cost and interest, to the buyer.
In most cases, when you choose this type of funding you will pay higher interest rates than you would pay with a traditional loan. This method costs the home buyer about 1% to 2% more than getting one's own construction permanent home loan. Most builders add 3% to 6% to the price of the home and home site package for this type of funding. The percentage charged depends on the amount of deposit the customer gives the builder and the amount the home site costs. Your construction funding fee will be relative to the down payment you are able to make on the loan. A higher down payment means a lower construction fee.
This type of construction funding is useful to home buyers that for any reason cannot get a construction permanent home loan but can get a loan at the end of construction called an end loan. When one uses this method the home and home site are deeded in the builder's name from the date the home site is purchased and is only deeded to the home buyer after the home is completed and paid for by the home buyer.
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Tom Beaty is a homebuilder and real estate broker for over 25 years. For free information on Florida home visit; Florida
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