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Blog :: 07-2020

The best resource for information about real estate, our local area, and current topics that impact you.

Read our blog for household tips, tricks, home improvement, buying/selling tips, DIY, and so much more!

If there is anything you'd like to see us write about, let us know!

How to Build a New House With A Standard Mortgage

 

Most people fall victim to the belief that you can't build a house without the ability to obtain a construction loan, or without having deep pockets. However, there is a way! When you stumble across a builder who "finances" their own builds, this makes it all possible! This means that you can actually build a brand new home when you are using traditional financing such as USDA, FHA, VA, or Conventional loans. 

How is it possible?

Mortgage Loans - Beacon Credit Union

It's quite simple actually - the builder is selling a final finished product, which the lender uses as the collateral to back the mortgage should the buyer default. With construction loans, there's no collateral to back the loan because the house has not been built yet. But when you build a home with a standard mortgage, the builder "finances" the build of the house by financing and/or purchasing the materials needed to build and pay subcontractors directly. It's very similar to buying an already existing home, but now you have the ability to build what you want rather than settling for what you don't want! 

What's the process?

When given the ability to compete against your own budget rather than other buyers for an existing home, you have more flexibility with what's possible. You also have more options for what can be done (within budget). While staying within your budget, you're given the ability to build your home rather than buying an existing home. When working with a builder who gives a buyer such flexibility, the buyer has the ability to pick the land, the style of house, and all other details that go into the building process! Obviously there are a lot of little details (that can also be major) that come into play when building - this is intended to be a general overview. 

The way it works is you find the land you want to build on, the builder buys the land and builds the house! All that is needed on the buyer's end is the pre-qualification/approval letter, and whatever deposit is agreed upon. From there, the lender begins the underwriting process while the builder begins the building process. Once the house is complete, the lender will send an appraiser to appraise the property and ensure it is 100% complete (or to whatever requirements the lender has, as these can vary). Afterwards, if everything looks good, the buyer and builder close on the property!

So the answer is yes, it's possible to build a new home using traditional financing. The key is to find the right builder!

If you're in the market for a home in New Hampshire, and you're interested in learning more about building a NEW construction home using a traditional mortgage - Contact us today!

Construction Loans vs. Mortgage Loans - What's the Difference?

Construction Loan vs Traditional Mortgage

Construction Loans vs. Mortgage Loans

When it comes to building a house, most people assume that you need to have deep pockets to obtain a construction loan. They're not wrong to assume that, as most builders do require cash installments, or a form of construction financing from a lender. Construction loans are available to anyone who meets the qualifying eligibility requirements.

So what is a construction loan, and how are they different from typical mortgage loans?

 A construction loan is used to finance the construction of homes, vacation homes, commercial buildings, offices, etc. Construction loans are different from traditional mortgage loans in a variety of ways:

1. Funds Due

The main difference is that with a Traditional Mortgage, the financed portion of the funds are provided all at once at the time of closing. On the other hand, a Construction Loan pays out a certain amount throughout specific stages of the build.  

2. Down Payment Amounts

Construction Loans typically require a larger down payment than traditional mortgage loans, and the interest rates tend to be higher as well. In addition, during the building process, the borrower is required to make interest only payments.

3. Length of Financing

Constructions loans place time frames on the building process, typically requiring that the project be complete within 12 months. Once the build is complete, the construction loan can be paid off in a variety of ways, depending on the term of the original loan. In some cases, construction loans are paid off with "end loans" which is another term for a mortgage. Or, the construction loan can also be paid off in full by the borrower once the build is complete.

This differs from regular mortgages because traditional loans vary in length (typically between 5-30 years) and are determined by the original loan terms. You also start paying monthly mortgage payments a month or two after closing. 

 

Why are those obtaining traditional mortgages usually unable to build a house?

This is because mortgages requires some sort of asset or collateral to back the loan. To explain further - a mortgage is used to finance the purchase of an existing home. This existing home is used as collateral should the borrower default on their loan. However, when building a home, there is no collateral since there is no existing home to secure the loan. This is why people believe they either need loads of cash, or, the ability to obtain a construction loan, if they want to buy a home.

Does this mean I can't build a home without having deep pockets or getting a construction loan?

NO! It is actually common to stumble across a few builders who do not require a specific type of financing to build from the ground up. That means building a house is possible when you're obtaining a typical mortgage financing such as USDA, FHA, VA, Conventional, etc. 

Contact us today to learn how we can help build your perfect home!

 

5 Home Buying Myths Debunked

There's a lot of information about applying for a mortgage and becoming a first time homebuyer, so it can be hard to tell what's right and what's wrong. Even more, some common myths make homeownership seem scary and out of reach. So we're here to settle these myths once and for all! FYI, Myth #5 is our favorite....

MYTH #1: You need 20% down to buy a home. 

Home Buying Myth Debunked Down Payment
 

FALSE! This myth can make many people think twice about buying a home. 20% down used to be the norm, but there are so many other options these days. If you're able to put 20% down on your new home, great! Putting 20% down is the most financially beneficial option in the long run. But not everyone can afford to do that since 20% on a $300,000 home is $60,000 - a hefty sum of money! 

Nowadays, banks offer all sorts of loans with different interest rates and down payment options. Most of the time, if you don't put 20% down, you'll need to pay PMI (private mortgage insurance) which is a small percentage of your loan that you pay each year. Some banks will offer no PMI options, but you might pay a higher interest rate.

Check out a few low down mortgage options with no PMI:

  • TD Right Step Mortgage - offers a down payment as little as 3% with no PMI
  • Navy Federal - offers $0 down for members with NO PMI (you'll pay "points" on the loan instead - a small % tacked onto the entire loan); if you know a family member or friend who is a member at Navy Federal Credit Union, they can refer you to become a member.
  • VA Loans 

 

MYTH #2: You only need money for a down payment. 

 

Home Buying Myth Debunked Closing Costs

False! What many first time buyers don't know is that there are many costs associated with buying a home, and a down payment is just the beginning. When you buy a home, there are several other costs involved:

  • Inspection Costs - The national average for an inspection cost is $336, but your realtor may know a few quality inspectors for a good deal, so be sure to look around and don't settle on the first one you find.
  • Appraisal Fee - The average range is $300-550, but will ultimately depend on the condition and size of the home and property. 
  • Closing Costs - These are typically 2-5% of the loan principal that you'll have to pay on closing day. Luckily, there is a way to lower what you have to pay out of pocket:
    • If you're trying to avoid paying closing costs on closing day, you can negotiate a deal with the sellers to have them help pay your closing costs.  
  • Lender Fees - These fees vary by lender but may include: 
    • Application Fees - Averages between $300-$1000
    • Loan Origination Fees - Averages between 0.5% - 1% of the total loan
    • Underwriting Fees - Averages between $400-900
  • Title Insurance - The average cost of title insurance is $1000 per policy, however, these vary by lender and can be found for much lower!

 

MYTH #3: You can only buy a home with a credit score of 700 or above. 

Home Buying Myth Debunked Credit Score

This myth turns many people off to the home buying process. Many people think they need an excellent credit score to even think about buying a home - but think again. 

Sure, a 700+ credit score will get you a good interest rate and loan. However, if you're below 700 (and we mean even sometimes well below), many banks will still give you a loan with certain stipulations (extra fees, higher interest rate, etc). Although you may still qualify for a loan, it's important to make sure that you can afford those extra stipulations set by the bank. 

If you have a steady income but feel your bad credit will get in the way, don't fret. Start doing your research on low credit loans offered to those who can prove a steady income, but have unfavorable credit due to past conditions or circumstances.

 

MYTH #4: All lenders are the same. 

This is very wrong! Many people think all lenders have the same rules and regulations when in fact, they're all different. While most mortgage processes are similar, each lender will have their own fees, protocol, guidelines, and rules. Huge corporate lenders often have too many applications to put in the time and effort to get to know each applicant, so it can be a less personal (and longer) experience. 

On the other hand, smaller and local lenders will provide a more personal experience, and inevitably a smoother, faster lending process. Do your research, ask your realtor, and make sure you're using a lender that fits all your needs. When you're looking for a lender, you'll want to find a lending agent you like who seems to fulfill all your request and needs as a home buyer. 

 

MYTH #5: You don't need an agent to buy a home. 

Home Buying Myth Debunked Realtors

This one is the WORST myth! We promise you'll regret not using an agent to buy (or sell) a home.

An agent is a professional just like any other. Would you count on a google search to fix a broken leg? Probably not. Professionals exist for a reason - they're the best at what they do and they know the topic inside and out. Using a real estate agent is your way of putting trust in a professional in that field. 

A good agent will guide you through the entire home buying process and answer any questions you may have along the way. They find houses in your price range, with your wants/needs, but they also hold the key to some properties that aren't even on the market yet. Real estate agents can know about a home even before it hits the market, which may mean you can have access to an amazing home and property before anyone else!

Agents will also get you a better deal. Our agents know when they see a good deal and they know when they see a bad one. They know comps in the area and always have their buyers best interest at heart - so if you're looking for a good deal, they'll try to do whatever they can to make it possible! 

Agents also do a large bulk of the work for you, so you'll stress less and have more time to take care of what's important to you during the process. When using an agent, you develop a relationship with them and discuss your wants, needs, and goals for your future home. They're responsible for keeping an eye out on the market and contact you when one pops up. Without a realtor, you'll spend hours upon hours searching homes on the internet that may not even still be for sale. You see, websites like Zillow, etc often have listings up that are already under contract. That means an offer has been accepted on that house and it's not really still available. You may have to shop around for one, bu do yourself a favor and use a good, FULL-TIME realtor! 

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