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Financing Your Building Project
This page is designed to help you, at whatever stage you are in ...
for planning to finance your dream home, or the building project you desire.
To skip Financing Information and jump directly to our list of Lender / Construction Financing Referrals, click here.
I wonder if I can qualify for the funds I will need for building this project?
In this current economy, you may have more purchasing power for building your new home than you thought possible...
New home construction is rapidly increasing, in the islands and all across the country. There are a number of ways that folks are successfully doing this, and one or more of these approaches may be best for you.
We have some Lender Referrals for you, as you read further down this page.
Loan shopping is important. There are some excellent rates and terms now. Some lenders are competing and making it easier for folks to get the financing they need. Don't be discouraged if someone has said you wouldn't qualify for a particular loan. There are many different kinds of mortgage programs being offered, by different lenders. Some may not work for you, but another lender may have something that will suit your situation perfectly. For example, there are special loan programs designed for those who are:
Each mortgage loan will have upfront and associated costs, so it can be wise to do a little shopping (or just ask a good mortgage broker) and find your best lender, terms and a loan with the kind of qualification guidelines that will best suit your own individual situation (etc.).
How do I know which financing options might work best for me?
There are several ways folks discover they can increase their equity by becoming first-time homeowners, new-home builder/owners, and/or owners of more than one home...
To help you be informed about real estate financing options, we have put together a few of the ideas and methods that are already working for many people in making their home-owning dreams come true.
We hope the information provided on this page will assist you in getting started in the right direction. Even if you have previously built or purchased a home, there may be some very useful ideas here that will save you in time and/or money....
Options 1, 2 & 3 are for those who already own existing homes...
1) Sale proceeds: Simple. Sometimes the funds for building your new home can come from the proceeds of selling another home or property you had owned.
2) Refinance, Build and still Save on your Monthly Payments: If you already own a home, this method can be a surprising "plus"... You may be able to benefit from the current economy, to build another new home without high payments, and without having to sell your original home!
With property values on the rise, and with the interest rates as low as they are, many people are pleased to find they are able to refinance their existing home mortgage, take out the increased equity (from their increased home value) and end up with a monthly payment not much higher than their existing original monthly mortgage payment. At the same time, they are able to use the additional funds to build a 2nd home (free and clear), instead of continuing to pay it out toward higher monthly interest payments on the older mortgage. Your new 2nd home will appreciate in value, too... so your equity can continue to grow, two-fold.
If home prices in your neighborhood are going up, you may want to look into how refinancing could be of benefit to you. Or...
3) Equity Loan or Credit Line on your present home, or an existing home or property that you may already own.
Another way to benefit from the current low interest rates and the rising value of real estate, this is one of the simplest methods for financing a new home construction project...
If your original mortgage is already at a favorable rate, you may not want to refinance it and pay points for a whole new (refinanced) mortgage loan. Still, your own home may now have enough increased value, to allow you to build a 2nd home with very reasonable terms...
Many lenders are offering easy-to-obtain flexible lines of credit (2nd) on your existing home. The current interest rates are excellent, and you may be able to build your new 2nd home free and clear, by opening a credit line on your original home.
These credit lines are flexible. You can pay them down and use the funds again and again as you wish over a long period of time, usually 10-25 years. The lenders provide you with a checkbook to freely access your credit line, so the funds remain at your instant access for whatever you will need.
I don't have a home to sell, or enough additional equity to borrow against...
What else can I do?
4) Construction Loans: Designed for first-time home builders, new construction, spec homes, etc... There are a number of loan programs specially designed for financing new construction.
Construction loans generally provide you with temporary financing paid out in "draws" that happen at certain defined completion steps during your active building process. They allow you to borrow the money in increments, and get your home built in several months (usually 6 or 9-month max loan terms). Then you will need a permanent mortgage loan (15 or 30-year) to repay your construction loan, and to give you better long-term interest rates (lower payments) for your new home once it is finished.
Construction loans can be a bit more paperwork than the first methods mentioned above. They are very helpful to get the new construction process underway. Depending on which lender you work with, the project must usually be organized to plan the various aspects (labor and materials) of the building project in a certain sequence, to meet the amounts and timing of the draws, and if you have a general building contractor, he/she will see to that for you.
There are Owner-Builder Construction Loans available now, which make this a much more simple process, and allow the owner-builder to simply request funds as needed for any portion(s) of the approved new home project.
In general, the rates are a little higher for construction loans, but it is only for a short period of months. So by the time you take your final draw to finish your home, you can roll it all right over into your permanent home mortgage at competitive (lower) interest rates.
With construction loans, there is also often a requirement for bonding, through a general building contractor and/or a materials supply house, to assure the lender that all funds are accounted for and paid where designated. There may be an additional charge or bonding fee for this service. Some lenders are now able to offer construction loans without this requirement, which can save you a lot and give you control to oversee how the funds are spent on your building project.
Permanent Mortgage. Most lenders have programs designed to "roll-over" your construction loan right into one of their permanent mortgage loans, once you receive your final building inspection. Some lenders might require you to apply separately for your permanent mortgage, or to go elsewhere for that, so you will want to ask about this before you start.
How do I find a lender offering the type(s) of loan programs that will work best for me?
Mortgage Brokers have the advantage of working with multiple lenders. They can assist you in locating a lender and loan program that best meets your needs, and in helping you to do what it takes to obtain your final loan approval and financing. A good mortgage broker will help you to get the proper documents together and processed to optimize your ability to qualify for, and complete the loan process that is best for you.
How do I know if I will qualify, or how much I can borrow for financing my new home project?
Pre-Qualification: Before you plan for building your new home, it is wise to know how much your construction budget will be, so that you can make informed choices about how much home you will want to build, and how to finish it out, etc.
If you will need financing, a good idea is to get pre-qualified with a lender or a mortgage broker, who can let you know how much you are qualified to borrow, approximately how much your monthly payments will be, etc. . It can be a quick and fairly easy process to become pre-qualified, and it is very helpful in enabling you to explore your options for designing and building your new home.
If you would like some customized assistance in loan pre-qualification and/or someone to help you find and arrange for financing to suit your individual needs, you may like to contact your bank or credit union and ask them what they can do for you.
Here are some Lenders and Mortgage Brokers with whom we have had good experiences in the past. We are not able to stay updated with all the changing loan programs, and we hope that these contacts may be of assistance to you in finding about current loan and/or financing programs that may suit your needs:
Will you be an owner-builder, looking for favorable financing or even a flexible construction loan?
If you have a home or workplace already established in Hawaii Island, you may open an account with the Credit Union of Hawaii.
A very helpful and personalized institution for those living and/or working in Hawaii. You will find professional assistance with an added level of flexibility and the spirit of Aloha at the Credit Union of Hawaii, now with several branches across the island.
Credit Union of Hawaii
Office: 808-933-6700 Toll-Free: 800-933-6706
Visit Online: www.cuhawaii.com
~ Made in Hawaii ~
Last modified on 4/25/2018.