Ask the Financing Expert Series
Construction Loan Down Payments - How Do Down Payments Work?
Brian Liable, Sr Loan Officer, and Primary Residential Mortgage, answers your home financing questions.
"Custom" doesn't have to mean "expensive" when it comes to building a new home.
From the construction loan to permanent financing, local experts can tell you everything you need to know - before you sign the bottom line.
Custom home builders like Stanton Homes can help you understand what you're getting for every dollar you spend.
Get frank answers to blunt questions like these, in our “Ask the Expert” column. Today's question:
"What Is a Typical Construction Loan Down Payment or Deposit?”
What kind of down payment is required to build a custom home? I hear this question quite often, and here’s how I answer it:
Before shopping for a builder, get pre-qualified for your mortgage. A pre-qualification will give a good idea of how much you can spend on your new custom home.
What Kind of Down Payment is Needed?
This is a tough question, because builders’ requirements can differ. A general guideline for your equity investment is 5-20% of the cost of the home. Many of the major lenders and builders want to see “skin in the game”. But with the right combination of lender and builder, the out of pocket expenses can be greatly reduced.
Along with your investment into the equity of the home, you will incur closing costs for the permanent and construction loan closing – typically in the range of 2.5%-3% of the loan amount.
Is it possible to Lower the Financing Cost of your New Custom Home?
One way to save money building your new home is to put the construction loan in your name instead of the builder’s name. With this process, you will be required to make monthly payments (interest only) on the construction loan, for money that you have used. That means the builder received draws as each stage of the home is completed and inspected. There may be an additional upside for the homebuyer, as interest expenses can be tax write offs.
Are Lower Down Payment Options available?
At our company, we have worked out a new construction/permanent financing arrangement where buyers are able to put as little as 25% of the lot price as a down payment, plus $5000 for project start up, as opposed to 5% - 20% of the entire project cost.
What is a Typical Deposit to a Custom Home Builder?
I work with a lot of great builders and each has their own minimum deposit requirement. Stanton Homes, a custom home builder in Raleigh NC, only requires a $5000 deposit on most new custom homes.
Ask your builder about down payment and investment requirements before you start your home building process.
Options are also available to recoup some of your new home investment. Ask me how.
Call Brian at 919-256-3133 for more details.
Ask the Financing Expert Series
Stanton Homes continues to offer the information you're looking for. Check back for more construction home loan and other financing questions from our new "Ask the Expert" column, where Brian Laible, Senior Loan Officer for Primary Residential Mortgage, will answer financial questions like "What type of down payment is required?" and "Are one time close products available?"
Send us YOUR questions to "Ask Brian", and look to Stanton Homes for the answers you need.
Brian Laible - Ask Brian!
Sr. Loan Officer, Primary Residential Mortgage
701 Exposition Place, Suite 118, Raleigh, North Carolina 27615