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Getting a Mortgage For a New Build Property
Getting a mortgage for a new build property can be complicated. This is due to the fact that there are different types of loans that you can choose from. You will also need to consider whether you should get a construction-only loan or a construction-to-permanent loan. Also, you will need to consider the requirements of the ENERGY STAR Certified Home program for potential rebates.
Down payment on a self-build property
Putting together a down payment on a new build property is an important decision. This is because a down payment is an initial investment in a home. It can be used to pay for other expenses, like maintenance or repairs, and it can also be used to build home equity. However, there are several things to consider before making your down payment.
The size of your down payment will affect your ongoing debt burden. It will determine how much you can spend on other expenses, including insurance, property taxes, and maintenance. And it can also affect your long-term financial health if not planned carefully.
For example, a larger down payment will open up the options to borrow from conventional and alternative mortgage lenders. It may also lower your mortgage payments, which means lowering the total borrowing cost due to less interest paid over the life of the mortgage loan.
However, it is not always easy to know how much of a down payment method will suit your situation. Speaking with a mortgage broker can help you figure out what you need to put down on a new home so your ongoing debt burden is affordable. You can also utilize a mortgage affordability calculator for suggestions.
Down payment on a new build property by builders
Alternative to constructing your own property, most people buy a new build property from builders. These builders will specify the deposit structure, which details the amount of down payment required and the payment schedule of each down payment.
The range of down payment amount varies from at little as 5% up to 20% of the purchase price. Each has its own pros and cons that affects the probability of getting mortgage approved and the ongoing debt burden after the closing day.
Prepare the documents in order
It is also a good idea to keep a paper trail of any large transfers in and out of the bank account in the past 12 months, especially if you have received a lump sum of deposit exceeding $10,000 that will need to be declared its source. Having the paper trail with clear donor and amount will help you get approved easier.
While putting together the paper trail for the past 12 months is not an easy task, it is one that is worth the effort.
Construction-only loan vs construction-to-permanent loan
During a self-build construction phase of a new property, a home buyer can choose between two different types of loans. A construction-only loan provides money to cover the cost of building a home, while a construction-to-permanent loan is a combination of a home building loan and a mortgage. Both have their advantages and disadvantages.
A construction-only loan is more flexible and allows a borrower to shop for the best mortgage. However, it can be more costly than a permanent mortgage. The interest rate may be slightly higher, and there are additional closing costs. This type of loan is typically used for fixer-upper properties.
A construction-to-permanent loan combines a home building loan and a mortgage into one, simplifying the closing process. It can also prevent multiple closings, which can be costly. Typically, construction-to-permanent loans have a rate that is higher than a permanent mortgage. However, it can be a good option for those who are moving into a home or have clear project costs.
When selecting a construction-to-permanent home loan, it is best to work with an experienced lender who can explain the details of their programs. An experienced lender can also help you to budget and control your costs. You should also get a professional appraisal of your home. This can help your lender feel more confident in your financing.
When choosing a construction loan, you should also be aware of the fees involved. These can add up to thousands of dollars. Your lender may also require a down payment. This down payment will depend on the type of loan you choose and the amount borrowed. You may also have to pay for prepaid homeowners insurance to protect yourself against damage to your home during construction.
It is also important to select a financial institution that specializes in construction lending. This will ensure you get the best loan for your home building project.
ENERGY STAR Certified Home program requirements
ENERGY STAR Certified Homes are a new home built to the highest standards, delivering better performance and better value. Energy efficiency measures include high performance windows, doors, lighting, and appliances. Also, the home's heating and cooling systems can provide better comfort and reduced energy costs.
ENERGY STAR certification is provided by an Energy Rating Company (ERC). The company works with the builder to determine the correct amount of energy-saving equipment for the home. They also conduct on-site diagnostic testing.
ENERGY STAR certification includes an independent inspection. The home builder must meet minimum insulation requirements and target energy efficiency levels. To be certified, the home must perform at least 20 percent more energy efficient than a reference home. The home's HERS score must also be higher than the reference design home's HERS score.
To qualify, the home must also have a complete water management system. This system includes a system that directs water away from the foundations, protects building materials from water damage, and reduces the risk of indoor air quality problems. The water system must also include moisture-resistant barriers.
The home must meet ENERGY STAR's minimum requirements for insulation and air sealing. It must also be designed with a thermal enclosure system.
The home must have ENERGY STAR-certified appliances and lighting. These may include Energy Star appliances such as refrigerators, dishwashers, and clothes washers. They also may include Energy Star fans. The home must also have high efficiency lighting, such as LEDs.
The home must meet ENERGY Star's requirements for water-efficient appliances. The home must also have a high-efficiency heating and cooling system. The entire home must comply with EPA requirements to receive certification.
The EPA website offers information for homeowners, builders, and contractors. The website is searchable by state and metropolitan region. It also provides a list of EPA partners and contractors who specialize in ENERGY STAR-certified homes.
In addition, the ENERGY STAR Homes Program provides independent testing of a home's energy efficiency. The program can save homeowners some money through rebates.
