Can I Buy a Piece of Land and Build a House on It With a Mortgage?

Are you looking for a new house that aligns with your needs? In such a case, an alternative that we recommend is developing a new construction home over a piece of land. This article will look at a few mortgage options for people keen on creating a brand-new home.

Qualifying For A Construction Mortgage

Similar to any other mortgage product, the first step involves the qualification process. Since your lender cannot consider a completed house as collateral for your loan, the process that is used for qualifying may take up a long time. Your mortgage lender will obtain information related to the home that you wish to build, such as its size, features as well as the contractor. During the qualification process, it is best to provide as much information as you can. You can even get the builder or general contractor involved since they typically hold several answers to the questions asked.

Construction-to-Permanent Mortgages

A kind of new construction mortgage is referred to as a ‘construction-to-permanent loan, which requires you to undergo the closing process only once. In a lot of cases, during the phase of the building of your home, you are merely required to pay off the mortgage interest every month. After the completion of your home, this mortgage is converted by your lender into a standard mortgage, similar to any other. There are several amortization periods, interest rates, and more available and you can determine them based on your choice.

Standalone Construction Loans

A standalone new construction loan is slightly different as this product enables you to borrow money for the construction of your home and upon the completion of your home, it functions as a permanent mortgage. In such cases, you are required to undergo the closing process twice, increasing your fees to a certain extent. But in case you are residing in a home and you will not have adequate money until its sale, this is a great option for you.

Clearly, qualifying for a mortgage for the building of a new home on a piece of land is slightly different when compared to the standard mortgage.