New construction: picking the right lender

Last month, we talked a bit about the re-emergence of building in the Great Smoky Mountains. With the market on the upswing due to so few cabins on the market and a huge demand among buyers, the prices on existing property have steadily climbed to a point not seen since before the downturn. As those prices began to reach the cost of building, new construction is beginning to appeal to buyers.

If you are excited about the possibility of owning your own vacation or rental cabin but can’t find exactly what you are looking for on the market and have the patience to wait out the building process, you may be at a place where building your own cabin is your best option!

As you work out in writing exactly what you are looking for in a cabin and picked the perfect builder to construct your dream cabin on the perfect lot for where you want the cabin to be located,  you’ll also need to be interviewing lenders about their different types of loans. One of the most important things you will need to know is how the project is going to be financed.

If you are very fortunate, you may come across a development project with the design you’re looking for where the builder is being financed by the lender directly. So then you would just buy the property as you would any existing home or cabin once it’s finished. The floor plans are pre-designed and while you may have some say in changes, most of the time it will be built according to the approved specifications.

Another great way to manage the financing of the project is to find the lot that meets all the goals of your floor plans and purchase it ahead of starting the project. If you have the cash to purchase the lot or if you can afford to wait until the lot is paid off, it’s possible the lot can be used as the down payment for the construction project. You just need the design to appraise for enough that the lot will cover the down payment. This is where the expertise of a real estate agent can be invaluable.

Different lenders offer different types of loans, so it’s important to know what your options are with the lender you pick to fund your project. Some will offer construction loans so you may have two closings – one for the construction project and a second for the conversion of the loan into a traditional mortgage. Others will offer a one-time closing.

During the building process, the lender will issue draws. These are payments made to the builder for materials, work performed, etc. As the buyer, you are generally only responsible for the amount borrowed on with each draw and payments you make are interest-only for the duration of the building process. So you can know fairly well ahead of time how much you can expect your payments to be as construction progresses.

If building your own cabin is the path you are considering, we can help you. We have worked with a number of builders on dozens of construction projects and would be glad to share our experience and expertise with you.