If you’re a homeowner who has dreamed of building your own custom home, you may be wondering about the best order of steps to take to make this dream a reality. When living in an existing home, it can be difficult to decide when to put your existing home on the market, or when to start working with home builders to get your project off the ground. Check out some of these tips to help guide you in making the best decision for your needs.
One of the first things to keep in mind is that you can obtain a construction loan for the purpose of building a home. However, depending on the type of loan you obtain, you will be required to pay for construction costs immediately upon completion of your home. Other loan types will roll over to a more traditional mortgage once construction is complete.
This means you will need to have necessary funds to either pay one large lump sum and/or carry two mortgages (one for your existing home and one for your newly built home). If you are planning on selling your own home after your new one is built, it’s important to judge market conditions fairly, so you can more accurately predict how many months it may take to sell your home. This way you can ensure you have enough funds saved to cover the additional mortgage cost until your home is sold.
Keep in mind that home sales have high seasonality, so it will be easier to sell your home during certain times of the year, like spring. If you can work with your builder to create a plan where your home can be finished around peak home-sales season, this will make it easier to sell your home and maintain a new mortgage.
To qualify for a new construction loan, some lenders may require you to show proof that you are able to finance both mortgages at once. Alternatively, some lenders may request you provide them with a sales contract showing your current home will be sold before you begin paying the mortgage on the new house.
If your lender determines you are financially qualified to maintain two mortgages, you can begin building your home regardless of whether or not you have sold (or have plans to sell) your existing home.
Another option is to rent out your existing home once you move into a new home. You may be able to use the future rental income of your existing property to reduce your debt-to-income ratio when applying for your new loan. You may have to show your lender a signed lease or gather data on occupancy and rental rates of similar homes in your area.
If you’re worried about your ability to sell (or rent) the existing home you’re now living in, you can opt to sell your home before buying new one. Regardless of the decision you make, work with your builder to find the best lender for your specific situation. Home builders have a lot of resources at their disposal to help ensure you get the dream home you want, and have as stress-free of an experience as possible. You can find new home construction companies on our site and get started right away.