Building your dream home is an exciting process. Unfortunately, applying for a loan doesn’t enjoy the same reputation. But the fun doesn’t have to stop when the topic of money arises. “It’s a misconception that it’s more complicated to obtain a new construction loan than purchase an existing home,” says Art Haan, a residential lending manager for First Internet Bank.
Haan, who has worked in the business for more than 26 years, says that while there are more working parts in a construction loan, the burden falls on the lender not the buyer. Here’s what you need to know to ensure your construction loan process isn’t a drag.
What does an effective construction lender do?
Simply put, a lender helps buyers navigate loan transactions. “I’m here to educate the customer, offer advice, and build a financial roadmap,” says Haan. A good lender will help you determine where you want to be in terms of your final loan amount at the end of construction and help you bridge that gap from the start to finish.
Everyone has a number. What’s yours?
“It sounds simple but I will tell you the two numbers that drive any transaction from a structural standpoint are cash and payment. Everybody has a threshold of pain for payment, no matter how much money they make— either they can’t or won’t spend more than a certain number of dollars on their housing expense no matter how much they qualify for,” says Haan. Look at your financial status and what other financial goals you have from savings or investments to travel. What are you willing and able to use?
Flexibility is a must.
“It’s my goal to give customers the greatest amount of borrowing ability and liquidity to accommodate needs that arise during the construction process,” says Haan. It’s important to have a lender that will provide flexibility for unexpected costs, even for something as small as an upgrade to your bathroom finishings.
“I can’t tell you how many times that somewhere along the line, a customer’s car blows up and they need a new one or their daughter is getting married and they suddenly need $50,000,” says Haan. “This transaction takes place over six to eight months and a lot can occur during that period. The more flexibility I can give, the better apt they are to handle those unforeseen things.”
When does the lender come in during the construction process?
Knowing what you’re willing to spend early on is a more powerful way to approach the building process rather than drawing and designing only to wind up with a price that’s nowhere near your budget. Haan takes a proactive approach to coach builders on the process. “It can’t be too early but getting engaged upfront gives me the ability to give the buyer a financial roadmap to know how much money is needed and when,” he says.
Your personality will play a role.
If you’re buying as a couple, there’s almost always a ying and a yang—the dreamer and the accountant. Both are important in the process but Haan says it’s the numbers person that has to be comfortable with the financial plan. “As soon as they’re on board with the process, everything goes smoother.”