There's nothing quite like dreaming up a brand new home built just for you—the lovely lot, the perfect floor plan, the finishes and touches that make it uniquely yours.
But before you get swept away choosing appliance packages and landscaping options, hold on! You'll need to get your mortgage approval process started first, and with a new home, there are just a few differences in the process.
Here's what you need to know and how to prepare to get a new construction loan rolling.
Step One: Determine what kind of loan you need
If you're building or buying a new home, there are two main types of loans you'll encounter:
A construction loan is used to finance the building of a property. For example, if you wanted to buy the raw materials to build your own house, you might take out a construction loan.
A home loan for new construction is when you borrow money to buy a home from a builder.
If your dream home will be part of an existing development with a single builder, you have a distinct advantage—the builder will often help you arrange financing. This can be an enormous benefit because their affiliated lending team works in sync with all the other arms of the builder's process, creating a seamless, turnkey experience for the buyer that's very comparable to the lending process for buying a pre-existing home.
If you are building a custom home, you'll need to secure a construction loan. A construction loan is often paired with lot financing loans. Most new home construction loans provide short-term funds designed to get you through the building stage of your project followed by a conversion into a permanent long-term loan of 30 or 15 years.
Step Two: Meet with a lender
If your new home will be in an existing development that offers turnkey services, meet with their affiliated lending team first to discuss available products and loan options as well as other services. Their team can help you determine how ready you are to purchase, what preparations you'll need to apply for approval, and give you an idea of how much home you can afford.
Step Three: Check up on your credit
Improving your credit score can help you secure different types of loans and better interest rates, so it's well worth taking the time to review and make a plan before jumping in with an offer. You can check your score on your own through the three major credit bureaus: Experian, Equifax, and TransUnion. Be sure to give yourself a little time to make any corrections, payments, or banking changes that can help boost your score.
Some lenders offer help from credit specialists to get potential borrowers in the best possible shape for their mortgage loan applications. If your lender offers this service, take them up on it! Credit specialists can scan your credit for any blips and blemishes that can impact your overall score, and help you create a plan to address any missteps.
Step Four: Get pre-approval
Your lending team will walk you through the process of securing a pre-approval letter, which will allow you to determine exactly how much of a loan you qualify for, and what the terms of that loan will be. You'll need to provide proof of all income, such as pay stubs, as well as tax and bank documents. All of this information helps the lender determine the best type of loan for you as well as how much you can comfortably afford, and this information will help you ultimately determine your budget for your new home.
Once you walk through these steps and have a pre-approval letter in hand, you're ready to move ahead with a clear financial picture and peace of mind.
The specialists at Lennar Mortgage can help you understand your financial position and finance your dream home by finding the best loan products for your individual situation. Let us help you get started on the path to homeownership today.