We met with the bank to finalize the details. We gave them any paperwork we did not have with us the first time we met as well as the lot agreement. Once we met once more with Freedom to do the redline meeting as well as make out interior and exterior selections the contract can be signed with Freedom and sent to the bank for approval.

Choosing a bank will be a little more interesting because construction loans are considered different from the traditional mortgage. The difference is you will be taking out a large loan against a promise to build something amazing instead of taking a loan out for an existing house. Overall the process start You should first make sure of the amount of money you will be qualified for on a construction loan. The paperwork to be qualified will probably include: current paystubs, W-2s or 2 years of tax returns if self employed, verifications of all assets, an offer to purchase for your lot, homeowners insurance and any other docs the lender may ask for. These are the basics that are always needed. So that part of it is just like what you would do to qualify for any home loan.

For the construction part of the loan you will need the plans for your new home and to find a builder. Once you have found the builder they will more than likely need to be approved by your lender which will consist of a form they will need to fill out along with a copy of their insurance.

Once the builder is approved they will take your plans of your home and get all the bids together for the total cost to build the new home ie. cement work, plumbers, electricians, heating/air conditioning, excavating, materials, labor, permits and any other cost associated with building the home. The builder will put a proposal together for the lender along with the plans and send this all to the lender. An appraiser will also get a copy of the plans and the proposal so that they can do a future value appraisal of the home to get the value once all the work is completed. Once everything is approved by the lender you will sign the initial lending documents for the construction of your home to begin.

Please note that you will be paying interest on any funds dispersed before the loan rolls to conventional. This is kind of tricky. So you go through the whole process – pay your 20% down and then they can start on your house. They have what are called “draws.” Basically after the builder has completed a job (ie the foundation) they submit a draw form and an appraiser form the bank comes out and appraises the work that has been done. Once approved, you and the bank sign the draw form and the builder is paid. The first draws are taken out of your down payment; the rest is taken from the loan. From that amount you will be responsible for the interest accruing from the point of the draw on. After all the draws have been made the loan rolls to a conventional loan. From that point you will be making payments like a regular mortgage.

A few things to note are that construction loan rates are typically higher than conventional rates. This is because the bank is taking more of a risk – there is no home, just vacant property. Also – you will need to get an insurance policy for the property called builders insurance. This protects against anything happening while your house is being built. Shop around for these in advance because the bank will not allow you to close (and the builders to start) until the policy is signed. Another thing we didn’t think about was utilities. We are responsible for paying the taxes and utilities while the home is being built. This makes sense, but we weren’t thinking we would have any utility and other payments until we were moved in.

Our original expectation was to buy an existing home. That’s what our friends, family, and most people do. We thought building was going to be too expensive or too complicated, until someone pointed out there was a coupon for a free finished basement and stainless steel appliances. Free. Basement…seriously. A single coupon peaked our curiosity and started us down this interesting building journey. An important thing to remember is there are two people making decisions you both will need to live with.

To us, there are three primary benefits to this. 1. We know that that quality materials and building methods will make a solid and efficient building. 2. Create a floor plan that works for us with materials/looks we want. 3. Cost is the same as the budget we set for an existing house.

The challenge is you have to find a place to put it, pick everything out, and wait for it to be built. We’ll talk about these points shortly.