Let your construction lender by your construction expert
Are you thinking of building, or more likely as most of us are not building contractors, having a home built for you? If buying a lot, hiring an architect and contractor and then having your dream home built sounds good to you, let’s talk about why a construction loan will make it even better…..even if you don’t need the money.
Why should you borrow money you might not even need when building your own home? First and foremost, because the lender helps control the flow of money from the owner to the contractor. Nobody wants their contractor to draw down 70% of the construction tab after doing only 25% of the work. Your lender, who employs engineers as it’s own construction experts to make sure that the home is built according to both your plans and the local building code, is doing so to protect it’s own investment in your project.
Indirectly, however, the lender is protecting your interests in the property’s proper development because your interests and the lender’s interests are identical when it comes to the relationship with the contractor and successful project completion. If you are not knowledgeable about construction, you will sleep better during the process knowing that lender employed construction experts are indirectly working on your behalf and making sure you don’t overpay or pay too soon for various stages of the construction.
There are other advantages to borrowing as well. Whether you are building a primary home, second home or investment property, experience tells me that there is always an investment component involved in the thinking of the folks that are having a home built. Why not leverage the investment, especially in the current environment of rising home prices and even more rapidly rising costs of construction materials.
Let’s say you borrow 80% of the cost of buying a lot and the cost of construction, which adds up to $1,000,000. That means you are going out of pocket only $200,000, in increments during a period of time of probably a year until the home is finished. If housing appreciation in the Vail Valley slows down to just 10% during your construction year, by the time you finish it, the house that appraised at $1,000,000 from it’s plans and specs will be worth $1,100,000 when completed. Your $200,000 investment has grown 50%, to $300,000. Because some of your $200,000 didn’t get spent until the latter portion of the year of construction, the investment return is actually higher than 50%.
Finally, since most financial advisors recommend at least some leveraging of all real estate that we own, to boost return on investment as shown above, most people will get a mortgage anyway. With our new construction to permanent financing one close options, lenders can now convert your construction financing to permanent financing without the cost and hassle of another closing.
Take advantage of our free construction experts, leverage your investment and most importantly, enjoy your new home.
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