If you’d like to build a home but can’t afford it, look no further.
Many people want to build a home of their dreams at some point in their lives. The problem with building a home from the ground up is that it comes with many costs. From the material to the equipment required, building a home can seem like a daunting task.
Fortunately, many home builder financing options exist that let people build homes without having to break the bank. When you understand what your options are, you can start building a house to live in or sell.
Keep on reading to learn more about several builder finance options!
Builder Spec Loans
Builder spec loans (or construction spec loans) are some of the most common loans used whenever someone wants to build a home. Unlike a mortgage, a spec loan isn’t based on how much a property costs. Instead, a borrower will propose to a lender how much they think it will cost to build the house.
Within the proposal will be the estimated budget, floor plan, and a timeline of when the project will be completed. This type of loan would let you build your home while only paying on interest. After the home is completed, you would be responsible for paying the regular loan amount along with the interest.
The main reason why people take out builder spec loans is that it lets them get involved with the entire process from the beginning. Being able to choose every detail about the house is often more fulfilling than buying a house that’s already been built.
Fix and Flip Loans
Out of all the construction loans for builders, fix and flip loans are the best when it comes to house flipping. These loans are specifically designed for people that want to build or renovate a house and sell it. Fix and flip loans usually have short terms, but they have quicker approval rates compared to most loans.
There are several types of fix and flip loans depending on what you want to do:
- Hard Money Loan
- Cash-Out Refinance
- Home Equity Line of Credit (HELOC)
- Investment Property Line of Credit
- Bridge Loans
Fix and flip hard money loans are some of the most popular because they’re used for house flipping.
Cash-out refinancing involves replacing your mortgage with a higher loan than what you owe. This is best used whenever you want to finance a new property.
A home equity line of credit lets you borrow against the value of your home and available equity. An investment property line of credit functions similarly, but you borrow against an investment property instead of a primary residence.
Bridge loans are used in between transactions when an investor wants to purchase another property. This prevents them from having to close on another transaction before they can start working on something else.
While builder spec loans and fix and flip are great options when it comes to home builder financing, they’re not the only options available. Those loans are strictly for a property, but you can still opt for something like a personal loan if you need extra money to fund your project.
Personal loans are flexible because they can be used for anything. Whether you need to purchase equipment for your project or materials, you can take out a personal loan to help cover the costs.
These loans are often unsecured, so they don’t provide the lender with collateral. The downside to this is you most likely will have to pay high interest rates. However, approval rates are quick and you can get your funds within days depending on where you go.
Most banks and credit institutions offer them.
The best way to utilize a personal loan is to use it with a builder spec loan. If you’ve underestimated how much your project will cost, you can apply for a personal loan.
Most people are familiar with credit cards, but they don’t realize that they can be powerful tools when you’re building a home. A credit card provides users with a line of credit that lets them borrow continuously. This is known as revolving debt because you can keep borrowing without having to apply for loans.
You can apply for traditional credit cards or get one that’s specific to a place. For example, some construction places near you may offer credit cards that can be used in their stores. If you get a traditional credit card, you can use it anywhere.
Similar to a personal loan, a credit card is best used when you need to cover extra costs that you didn’t plan for. Unless you have an outstanding credit score, your line of credit won’t be high enough to cover major costs. However, you’ll be able to purchase materials and equipment occasionally if you need them.
Start Considering These Builder Finance Options
If you plan on building a new home to live in or sell, you’ll need to come up with a way to finance the project. In most cases, you can get a builder spec loan or fix and flip loan to help mitigate the costs. These are the best construction loans for builders, so you should start looking into them.
After you’ve acquired a construction loan, you can get a personal loan or credit card to help with extra costs. No matter what kind of project you’re working on, you’ll be able to complete it without having to worry about money.
Contact us today if you’d like to learn more about our builder finance options!