How to Finance a New Construction Home in Omaha
Most of us dream of owning a new construction home one day, but financing one can feel a little overwhelming. While we’re all familiar with how to finance an existing home, buying a new construction home in Omaha requires a slightly different approach. However, once you have understood how it works, you will feel confident that buying a brand-new home is the right choice.
In this blog, we’ll walk you through the key stages of financing a new construction home in Omaha. We’ll also explain the benefits that come from working with an experienced builder with great connections who can simplify the financing process.
Consider Your Budget and Financial Readiness
Whether this is your first home purchase or you’re a seasoned homeowner, everyone has a budget and financial considerations to think about. Before you start considering plots and home styles, consider the following:
- Your credit rating
- Debt-to-income ratio
- Savings on hand
Some out-of-pocket expenses to consider include your deposit and closing costs. On a new construction home, closing costs can range from 3 to 5% of the total build cost.
If you don’t have the cash to finance the entire build outright, your two main options will be a construction loan or a builder financing loan.
Construction Loans
Existing homes are usually paid for in one lump sum, usually a mixture of cash and a mortgage, on closing day. However, construction loans work differently.
Construction loans release funds gradually, often on a monthly basis, throughout the building process. Interest rates are usually higher than standard mortgages, but they are only a short-term form of financing. Once you have received a certificate of occupancy, you will be able to end your construction loan and take out a mortgage to continue paying it back.
Another type of construction loan is a combination loan, also called a construction-to-permanent loan. Rather than having to search for a mortgage at the end of the construction process, it becomes a mortgage automatically. This has the advantage of only requiring one approval and one set of closing costs.
Builder Financing
For many home buyers, a more preferable option is builder financing. If you work with an experienced, professional home builder with years of experience in building Omaha homes, they will likely have excellent links with lenders. They may offer builder financing, which cuts out the need for a construction loan and allows you to access a traditional mortgage from the outset.
Your builder can introduce you to a mortgage lender, or in the case of established Omaha builders, several lenders with whom they have an established relationship. Builder financing can help you get your home construction off the ground more quickly, as you don’t need to search for a construction loan. You can leverage the great relationship your builder has built up with the lender to secure a mortgage more quickly.
It pays to work with a builder who has a relationship with several lenders. Rather than being restricted to a single lender and the interest rates they offer, you can take your pick from a range of options. While many builders have preferred lenders, you retain full control over which lender you choose to use for your project as long as the terms are acceptable to your builder.
Builder’s Deposits
If you are buying a spec home – a new construction home that is already built – you may not need to pay a builder’s deposit. But if the builder has yet to break ground on your home, you may need to pay what is called earnest money or a builder’s deposit.
Earnest money is an upfront deposit that will be held in Escrow until the home is completed. This is typically 5–10% of the final purchase price and shows you’re serious about completing the deal. This deposit is non-refundable, so you would lose it if you decide to walk away from the project.
Build and Finance With Confidence With Charleston Homes
At Charleston Homes, we believe in delivering affordable, bespoke homes that our buyers can enjoy for years to come. We take care of every detail when building your new home, and we’ve applied the same level of detail to the relationships we’ve nurtured with our preferred lenders.
On our financing page, you can find details about a wide range of lenders with whom Charleston Homes has personal relationships. Our preferred lenders can guide you through every step of the financing process, from applying for a mortgage to closing.
To find the answers to your questions about home building, financing, and more, submit a pricing request, and one of our Sales Associates will contact you very soon.
