Financing My New Home
The questions that we get most often at Robert K. Ace Jr. Construction LLC are regarding financing a new home. If you’ve never bought or built a house before, this can definitely seem like a daunting task. Don’t worry! Our sales representatives are also licensed real estate agents who can help walk you through the numbers with ease. Here is some information that you should know before about how a new home project is financed.
Decide how much you feel comfortable spending.
Most people approach this question by coming up with a top-line number (I don’t want to spend more than $400,000 dollars); however, we recommend that you focus less on the purchase price and more on your monthly carrying costs including mortgage, property taxes, maintenance, and homeowner’s insurance. Still not sure? Our sales representatives can help you determine the monthly cost that’s comfortable for you and your family.
What other factors will affect my ability to buy a home?
Generally, your FICO credit score will have the greatest impact on how much you can borrow. According to FICO, people with credit scores of 760 or higher will be eligible for the best mortgages. In general, you should have at least a 620 score. If your score needs improvement, contact one of our sales representatives to see what step you need to take. Some other factors to consider are; how much money do you have saved, your amount of debt (credit cards, student and car loans, etc.), your rental/home ownership status, and your current employment.
What type of financing do you needed?
There are two ways to pay for your new home; cash or a bank loan.
- If you intend to pay with cash, you will need to provide proof of funds to your sales representative. A proof of funds letter is a document providing evidence that a borrower has enough liquid assets, or cash, to buy a home. Homebuyers need this paperwork to demonstrate to the seller that they can cover purchase costs, including the down payment and closing costs.
- If you want to get a bank loan to finance your purchase its best to contact your financial institution and get a preapproval letter for a mortgage. A prequalification or preapproval letter is a document from a lender stating that the lender is tentatively willing to lend to you, up to a certain loan amount. Be sure to tell your bank that you are looking to build a new home. The process for getting approved to buying an existing home versus building a new home is different.
I don’t have a bank in the area I want to build. No problem! We have a network of relationships with local financial institutions who can help you find exactly what you need. Call today and one of our sales representatives can put you directly in touch with who you need to speak to.
Do I need to have cash to purchase a home? The short answer is yes… so plan accordingly. The builder will require a down payment to cover the upfront costs associated with starting your new home build, such as design and permitting. Most banks will require a down payment on the construction loan as well, but the amount varies by lender. There are other alternative available too. For instance, if you own your land outright you may be able to use that equity to offset the down payment requirements. Depending on the type of loan you have there may also be out-of-pocket closing costs. You should also set aside a percentage of your purchase price to cover selection upgrades, allowance overages, and unexpected costs. While this seems like a lot, our highly trained sales representatives can walk you though what is required and help set up a budget to make your dream new home a reality.
What will my home really cost? The answer is more complicated than you think once you factor in everything that goes into constructing a home and the choices you can make along the way. Your builder will provide you with an estimate based on a specification (a detailed description of the design and materials used to make something). Beware home prices that seem too good to be true. Some home builders hide or minimize the less obvious building expenses just to get your business.
At Robert K. Ace Jr. Construction LLC we highly value transparency and feel that it’s important to understand what goes into your estimate. RKA will provide you a fixed cost estimate indicating in bold print any items which may be based on an “Allowance”.
An allowance is a set figure that has been built into the contract for what costs might occur during the construction progress. The pricing of these allowances is based off standard systems, procedures, and packages. Due to unknow existing conditions of the land the house is being built on and/or personal selections of items, the actual cost of the allowance items can come in below, at, or over the allotted allowance amount.
Based on the home buyer’s discretion, other items that may or may not be included in your fixed price such as; permits, HOA fees, stormwater and engineering plans, specialty testing/remediation requirements. These items typically vary by township/jurisdiction. Your sales representation will be able to you decipher which of these items are required for your new home construction.
Variation in home cost. You’ve done your basic research and are starting to get bids only to realize that the price per square foot of equally sized homes vary… the plans look the same, but the costs don’t match up. There are numerous factors that can affect the cost per square foot of a design:
- How the square footage is calculated. Some builders include garages, porches, basements and volume space in their calculations. At Robert K. Ace Jr. Construction LLC we use the ANSI Z765-2003 “Plan-Based Method”. This only counts the livable, heated square footage of each level.
- Design complexity. Room spans, roof lines, and offsets can greatly affect the cost of a house.
- The type of plan. Generally, ranches have a higher cost per square foot than a 2-story design.
- The fixtures included. For instance, adding a bathroom in place of a closet will increase the cost per square foot, since a bathroom involves more cost items (fixtures, finishes, etc.) than a closet.
- Materials used in construction. There are top-of-line products, mid-level products, and cheaply made products. The “bones” of your project, while unseen, can drastically affect the cost.
- Personal preferences. You may wish to have a chef’s kitchen with high-end appliances and all the bell and whistles. Another design may have a standard kitchen. Both designs have a kitchen, but the chef’s kitchen will significantly increase the cost per square foot over the other design.
That’s a lot to digest, but don’t fret. Our expert sales representatives are here to guide you every step of the way. Call today to set up an appointment 844-420-9908.
If you would like to get more info check out the links below.
Get familiar with the lingo. NAHB’s Home Buyer’s Dictionary
Special Financing Programs. HUD Department of Housing and Urban Development
Personal Finance. Investopedia https://www.investopedia.com/personal-finance-4427760