Depending on the scenario, financing options may slightly differ if you are purchasing a brand new home that is under construction. You can either buy an under construction home from a local/regional/national builder or you can choose to build your own custom home. Below we will discuss both options and the type of financing required.

In the first scenario, buying a home from a local, regional, or national builder will not require any atypical financing than the purchase of an existing home. However, the only thing that will be different in this case as opposed to buying an already existing home is that you will apply for the loan once you sign the contract, but you will lock the terms of your loan until the property is complete. However, if you are building your own custom home then financing options differ from the financing an existing home

By choosing to design your own home, you will encounter many style options from the fixtures to the finishes, and unless you have the cash to pay up front for all of these you will have to deal with the bank or another type of lender. Keep in mind that not all lenders offer construction loans, so you will have to do a bit of research to find out which lenders in your area offer these type of loans. A lender that provides construction loans will typically offer two solutions to help you handle your construction project. One time closing is the first solution, in this case you will be offered an interest only loan during the duration of the construction (usually from 6-12 months). Once the construction is complete the loan converts to a fixed rate loan, there is a fee for this conversion. However, due to the high risk of this loan many lenders will choose to offer the two-closing loan. The two-closing loan as the name suggests is actually two loans, the first is taken out during the construction period and once the closing costs are paid out, the second one comes into effect as an end loan, where you will again have to pay for closing costs. Not everyone can qualify for a construction loan, in fact very few people can.

You must have excellent credit and be able to put at least 20% down in order to be eligible for a construction loan. The down payment for a construction loan is based on the cost of the land and the cost of the house. For example, if the land costs $200,000 and the home costs $250,000 then a 20% down payment would be $90,000 (($200,000 x 0.20) + ($250,000 x 0.20)). Moreover, the lender will have to do a background check of the builder as well, since not completing the project is also part of the risk. This loan is not given out as a lump sum, instead the lender decides to free more money up based on his assessment of the project needs.