How to Finance a New Home or Renovation Project

Financing a new home or renovation project can at first seem confusing, intimidating and a bit overwhelming.  But you can breathe easy, because it’s not as hard as it sounds. 

The first thing you need to do is find a lender that will loan money for construction projects. Though many national lenders have construction loan departments, they are often unfamiliar with land and construction pricing in our area.  We suggest you also talk with small lenders like regional and local banks when doing your research.  

Once you select a lender, they’ll want to know what you are building or proposing to build, so they can perform their appraisal. Don’t worry if you don’t know yet, or don’t have full drawings to get approval for the loan. Most lenders can get an appraisal from the Schematic Design drawings prepared by your Architect.  Once the lender receives the appraisal, they will let you know how much money they are willing to lend.

Generally most lenders offer the following:

• 70-75% Loan to Appraised Value
• Terms of 1-2 Years
• Interest Only Payments During Construction Period
• Loan Origination Points of ½ to 2 percent of the Loan Value

Lenders do consider equity as cash so if you have a lot of equity in the home, that can help during the approval process.   

It’s best to start the loan process early in the design phase so you’ll have plenty of time to work through things like income verification, construction budget review for the home, a financial statement review, and appraisal. Then you can focus on the most important part: building your project!