We’ve shared quite a bit of information regarding the actual building process at Carolina Custom Homes, but we’ve realized that folks also have a lot of questions about the necessary steps to take before they commit to the building process. So, if you’re looking forward to building your dream home, but aren’t sure how to start getting your money in order to do so, this one’s for you. Typically, whether you’re buying an existing home or are looking to build a home, getting your money sorted out should look something like this:
- Talking to a lender
- Determining your all-in budget
- Saving for a downpayment
- Getting approval
- Climbing & signing a mountain of paperwork (ah, the glories of homeownership)
Talking to a loan officer.
We recommend meeting with a loan officer prior to diving into your building or buying experience because they’ll be able to help you determine a budget and appropriate downpayment, find the best loan options for your lifestyle and situation, and offer you a ballpark estimate for how much you’ll be approved to borrow. A lender will help you determine what to expect by taking your credit standing, debt-to-income ratio, employment history, and the size of your household into account. Essentially, they'll take a look at your financial health to determine the loan programs and loan amounts for which you’re a strong candidate and what kind of mortgage rate you could realistically manage.
Consulting a lender to get pre-approved for a loan is typically free of charge and obligation, meaning you have nothing to lose from meeting with a loan officer before moving forward with your planning, but a whole lot to gain by it.
Deciding on a final budget.
Now that you have a clearer understanding of what kind of expenses you can actually afford to take on when considering your income, debt, interest rates, and loan options, it’ll be easier to determine a firm all-in budget. Keep in mind, you might have been pre-approved for more than you expected, but it’s a good idea not to trust that just because you were approved for a higher amount means you can afford a higher amount, particularly if you’re a first-time homebuyer (in which case, you might like: 5 First-Time Homebuyers’ Mistakes to Avoid).
Whether you’re considering the cost to build a home or buy a home, set a firm budget below your absolute maximum to give yourself some breathing room.
Saving for a down payment.
The variety of loan options and each buyer’s unique circumstances make declaring a universal number or percentage for a down payment nearly impossible. That said, down payments can safely range anywhere from 5% - 20% of the cost of the house depending on your unique situation.
To read about the various types of loans options and whether you might qualify for lower-interest loans, check out: How Much Should I Save for a Down Payment on a Home?
Getting approved for a loan.
At this point, you should have already gone through the pre-approval phase. This time, you’ll work with your loan officer to get a final number for how much you can borrow. Once you’ve received the official “all clear,” from your loan officer, you can work with your real estate agent to put an offer down and buy a home or move forward with the custom home building process.
Here comes the paperwork.
We’re only kind of kidding about the mountain of paperwork, but the good news is that you’ll have help along the way. Whether it’s your loan officer, real estate agent, or attorney, a pro will be there to advise you on closing day. Of course, the paperwork for buying a home will look a little different than the paperwork for building your own, but at the end of the day, you’re still going to sign your name on a lot of dotted lines. The good news is, at this point, the nitty gritty financial stuff is sorted out, and you’ll be well on your way to moving into your new home.