To build or not to build? The answer is…BUILD!
Ridgeline Homes, LLC, believes in finding hope and confidence in the future, and there is no better way to show optimism than building your dream home. With that said, we truly care about our customer’s path to selecting or building their dream home. We understand the frustration of the lending process, and as you conduct your own research, you’ll find that mortgage loans are NOT one-size-fits-all. Therefore, we are comparing and contrasting the two most common types of loans: Construction loans and conventional loans.
Unlike conventional loans, construction loans pay for the process of homebuilding. Furthermore, the approval, appraisal, and disbursement processes are very different from a traditional mortgage. Also, the loan itself covers more than just building costs. In most loans, the land, labor, plans and permits, contingency reserves, and interest reserves are all included in the loan bundle.
Spotting the Difference
First, you need to get your credit in order. Most lenders require a score of 680 or higher. Also, the downpayment will be higher than a conventional loan. Lenders require a 20%-30% down payment for any construction loan. Construction loans are for a shorter term and have higher interest rate mortgage that covers the cost of building. Another way a construction loan is different, is that the lender pays a construction loan to the contractor–Ridgeline Homes–in installments as the construction phases reach certain milestones. Once your dream home is complete, the home construction loan is either converted into a more permanent mortgage, or it is paid in full.
Two Types of Loans
- Construction-to-Permanent Mortgage (Single-Close)–This loan allows for the borrower to have interest rates locked in at the time of closing, much like a conventional loan. Most commonly selected for residential home builders, this construction loan type allows you to convert the construction of your home into a permanent mortgage, and it is most suitable for people who cannot pay the entirety of the loan after the construction of the home.
- Construction Only (Two-Close)–Do you plan to pay off the entire construction costs of your home after it is complete? Then this loan is for you! However, this loan does not come without its own caveats: Not only do you have to qualify and get approved, but you may have to pay closing costs more than once.
Not ready to build your dream home? That’s okay! Ridgeline Homes offers new-construction homes in three convenient, yet peaceful, locations in Montrose, CO. If this is the route you wish to take, then here are some major points on landing a conventional loan–the most common type of loan.
Spotting the Difference
Conventional loans are the best type of loan for people who have good credit, a stable income, and who can afford a down payment. While it’s best to put down the 20%, some lenders help buyers who can only put down as little as 5% with private mortgage insurance (PMI).
While conventional loans are the most common, they are not for everyone. What happens if you don’t have great credit? Or what if you’re a veteran? Or a first-time homebuyer? If this applies to you, then you’ll need to research federally-backed loans such as VA, FHA, or USDA. Otherwise, here are the two types of conventional loans:
- Fixed-Rate Mortgage–If you plan to stay in your home for at least seven or more years, then this is a great option for you. The life of the loan usually falls under a 15 year contract, or a 30 year contract. Moreover, your monthly payments are typically low, for they are spread out over time.
- Adjustable Rate Mortgage–This type of mortgage is geared toward people who do not plan on staying in their home past the time when the interest rate will change, and the terms are typically: 3 years, 5 years, 7 years, or 10 years. It’s called an adjustable rate mortgage because there’s an initial period where your rate is fixed; however, after this initial period, the rate can adjust (increase).
Invest in Ridgeline Homes
Let Ridgeline Homes walk you through the process of financing your custom home. It’s so easy, you’ll have the keys to your new home in no time. Step-by-step, we will help you through the selection process of every stage of your new home–from the interior, to the exterior, to your landscaping needs! In addition, you have three, peaceful subdivisions to choose from. We want to get to know you, and understand the type of lifestyle you want to achieve.
Ridgeline Homes, LLC, is building the home for YOU, not for us.
Bring more optimism to your life and start planning your dream home today!