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You are getting ready to build your custom designed new home and you will need to obtain financing for your project. Financing for your new construction home is readily available. When building a new home, there are many things to consider. Location, size, design, colors, cabinets, countertops, and more.  One of the biggest items, and often overlooked, is your new home financing.

FIRST STEPS FOR NEW CONSTRUCTION:

First, sit down with a mortgage lender. Determine you budget, how much you can afford, what payments would look like, and get fully pre-approved.

If you have an existing home to sell, contact a reputable real estate agent, to determine a marketing plan on your home, and how much money you may expect to profit from the sale.

Finally, it is time to meet with a builder and their design team to finalize your new dream home with a location and price that fits your lifestyle and payment objectives

TWO TYPES OF CONSTRUCTION LOANS

THE BUILDER CARRIES THE CONSTRUCTION COSTS
This type of new construction exisit primarily in new developments where you pick from one of the existing lots, and pick from a number of designs that builder offers.

After finding the right home, picking out a design, and signing a purchase agreement, you will usually give the builder some up front earnest money (usually about 1% of the purchase price, (but could be more or less) to build you your new home. The builder then carries all the costs to build the home, and you close on the deal once construction is finished.

With this type of new construction, you can pick from just about any type of mortgage loan, from standard conventional loans, FHA, VA, USDA, and even first time home buyer and down payment assistance loans.

This is generally the preferred method for most people

THE BUYER CARRIES THE CONSTRUCTION COSTS:
This type of construction loan generally is when you find a lot on your own, typically not in a development, and wish to build a home. Construction loans are a lot more work and paperwork intensive. They also generally require 20% for down payment, and a very strong application with excellent credit scores, and low debt ratios.

This type of financing is more complicated, and may also mean you are working with a smaller builder who can not afford to carry the construction costs. Once you've picked out a lot, and have worked with the builder to draw up the new homes "plans and specs", you go to a small local bank for a construction loan. New construction loans in MNThe bank will review everything, including the builder's resume, experience, references, and then review the line item cost breakdown, materials list, and your construction contract.

Assuming all looks good, the lender approve your construction loan, and will slowly give out money, known as draws, as the construction goes on. Most banks limit the draws to just four over the construction period. Usually the first draw is to buy the lot.  The second draw is after the foundation is in, and the third draw being after framing is done. etc.

During the construction period, you will usually make interest only payments to the lender, based on the amount you have used (drawn) so far. Most construction loans are good for only 6 months to 1-year before you need to pay them off.

As the home nears being finished, or is completely finished, you now need to pay off the banks construction loan.  You will work with a traditional mortgage lender, like us here at Mortgages Unlimited, to select your end loan, which is usually the standard 30-year fixed loan.

Where to Get your Construction Loan:

If the builder is carrying the cost of construction, you can use any mortgage lender you wish for the mortgage loan.  Banks, Brokers, or independent Mortgage Companies (like us).  Most builders will require you to get pre-approved up-front before they start building your new home, and to provide them with a Pre-Approval Letter.

If you are carrying the cost of construction with a true construction loan, these loans are most often done with small regional banks with specialized construction loan departments. This is who I suggest you use.  The final "end loan" after the construction is done can be obtained from any mortgage lender, but of course we hope you select us here at Mortgages Unlimited.

BEWARE The Builder Incentive Game

Many builders will work very hard... less I say try to force you to get you to use their preferred mortgage company, which most often is owned by the builder. Generally they will try to entice you with various builder incentives.  Common items are "free" appliances or upgrades, or that they will pay for your closing costs if you use their lender, but they won't if you use any other lender. You are actually free to use whatever lender you'd like. Almost without fail, lenders not related to the builder will give you much better deals.

It is illegal for a builder to force you to use their lender.

While these builder enticements sound good, understand that no builder is giving away anything. They simply already priced the offer into the cost of the home, but use they fake enticements to lure unsuspecting buyers into using their lender. Buiders make a LOT of extra money with this gimmic. Sadly, home owners simply paid a higher interest rate, and got zero in return.  The worst once are those think their home is worth more than they bought it for because of the 'free finished basement'.

Appliance upgrades, finish the basement, and paying the buyers closing costs in exchange for you using their lending ALL COST YOU A LOT OF MONEY over 30-years.

TIP: A strong buyer can still get everything the builder offers, AND use your own lender, where you will always get a much better interest rate than the builders company. They will do everything possible to prevent this, but ultimately, they WILL sell you the home with all the standard offers and enticements. Remember, the enticements are already in the cost of the house.

They simply price it into the overall cost of the home, then offer teasers to lure unsuspecting home buyers into their trap.  Increase the margins on the home price by $20,000 – then give a buyer a $10,000 credit for closing costs by forcing a client to pay more with “their” lenders isn’t a deal.

Most buyers would be better off telling the builder you’ll get your own financing and to cut the homes actual price to a no incentive price. Sadly, most new home buyers are blind from the glare of their shiny new object (the home) and end up smiling over the “deal” they received. Needless to say, the builder is left with a tidy profit.

REMEMBER: “There’s a sucker born every minute” P. T. Barnum (1810–1891), an American showman.

- See more at: http://bestminneapolismortgage.com/2013/09/06/homebuilders-sucker-clients-phony-financing-incentives/#sthash.yytB8H5l.dpuf
No builder is giving away anything! They simply price it into the overall cost of the home, then offer teasers to lure unsuspecting home buyers into their trap.  Increase the margins on the home price by $20,000 – then give a buyer a $10,000 credit for closing costs by forcing a client to pay more with “their” lenders isn’t a deal.

Most buyers would be better off telling the builder you’ll get your own financing and to cut the homes actual price to a no incentive price. Sadly, most new home buyers are blind from the glare of their shiny new object (the home) and end up smiling over the “deal” they received. Needless to say, the builder is left with a tidy profit.

REMEMBER: “There’s a sucker born every minute” P. T. Barnum (1810–1891), an American showman.

- See more at: http://bestminneapolismortgage.com/2013/09/06/homebuilders-sucker-clients-phony-financing-incentives/#sthash.yytB8H5l.dpuf
No builder is giving away anything! They simply price it into the overall cost of the home, then offer teasers to lure unsuspecting home buyers into their trap.  Increase the margins on the home price by $20,000 – then give a buyer a $10,000 credit for closing costs by forcing a client to pay more with “their” lenders isn’t a deal.

Most buyers would be better off telling the builder you’ll get your own financing and to cut the homes actual price to a no incentive price. Sadly, most new home buyers are blind from the glare of their shiny new object (the home) and end up smiling over the “deal” they received. Needless to say, the builder is left with a tidy profit.

REMEMBER: “There’s a sucker born every minute” P. T. Barnum (1810–1891), an American showman.

- See more at: http://bestminneapolismortgage.com/2013/09/06/homebuilders-sucker-clients-phony-financing-incentives/#sthash.yytB8H5l.dpuf
No builder is giving away anything! They simply price it into the overall cost of the home, then offer teasers to lure unsuspecting home buyers into their trap.  Increase the margins on the home price by $20,000 – then give a buyer a $10,000 credit for closing costs by forcing a client to pay more with “their” lenders isn’t a deal.

Most buyers would be better off telling the builder you’ll get your own financing and to cut the homes actual price to a no incentive price. Sadly, most new home buyers are blind from the glare of their shiny new object (the home) and end up smiling over the “deal” they received. Needless to say, the builder is left with a tidy profit.

REMEMBER: “There’s a sucker born every minute” P. T. Barnum (1810–1891), an American showman.

- See more at: http://bestminneapolismortgage.com/2013/09/06/homebuilders-sucker-clients-phony-financing-incentives/#sthash.yytB8H5l.dpuf
No builder is giving away anything! They simply price it into the overall cost of the home, then offer teasers to lure unsuspecting home buyers into their trap.  Increase the margins on the home price by $20,000 – then give a buyer a $10,000 credit for closing costs by forcing a client to pay more with “their” lenders isn’t a deal.

Most buyers would be better off telling the builder you’ll get your own financing and to cut the homes actual price to a no incentive price. Sadly, most new home buyers are blind from the glare of their shiny new object (the home) and end up smiling over the “deal” they received. Needless to say, the builder is left with a tidy profit.

REMEMBER: “There’s a sucker born every minute” P. T. Barnum (1810–1891), an American showman.

- See more at: http://bestminneapolismortgage.com/2013/09/06/homebuilders-sucker-clients-phony-financing-incentives/#sthash.yytB8H5l.dpuf
Most buyers would be better off telling the builder you’ll get your own financing and to cut the homes actual price to a no incentive price. Sadly, most new home buyers are blind from the glare of their shiny new object (the home) and end up smiling over the “deal” they received. Needless to say, the builder is left with a tidy profit.

REMEMBER: “There’s a sucker born every minute” P. T. Barnum (1810–1891), an American showman.

- See more at: http://bestminneapolismortgage.com/2013/09/06/homebuilders-sucker-clients-phony-financing-incentives/#sthash.yytB8H5l.dpuf

American showman PT Barnum said "There is a sucker born every minute." This couldn't be more true for home buyers using the builders lender.

TIP: Other enticements, like this special price, or the free finished basement if you sign by this weekend - are also phoney. Trust me, you can still get the same price and the same offers if you think about it and come back ten days later.


MN, WI, and SD Home Loans, Mortgage Rates, and Closing Cost Information

Call me anytime at (651) 552-3681. I'll discuss with you options on getting the home you like, without overpaying, and discuss with you how to handle builders who force you to use their lender. 

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Our services available only for properties located in Minnesota, Wisconsin, and South Dakota. Licensed as Mortgages Unlimited, Inc. NMLS # 225504. As a Lenders One partner, we are part of the 3rd Largest Retail Mortgage Originators in the country. We are consistently ranked as one of the top mortgage lenders in Minnesota by Minneapolis St Paul Business Journal. Any use or duplication of any materials is strictly prohibited.  All images, text, and materials © 1998 - 2017 Joe Metzler. This is the private web site of Joe Metzler, NMLS #274132. All Rights Reserved.