How Do You Finance New Construction Homes?

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Financing a new construction home isn't the same as financing for a resale home; you have two main options. Allow me to explain the difference between the two.

When buying a new construction home, the financing works a bit differently. But how?

There are basically two ways to fund new construction—a one-time close or a two-time close. Each has its pros and cons, so I wanted to provide an overview of both.

A one-time close uses one loan from the beginning to fund the construction and purchase of the home. The advantage of this option is that there is only one set of closing costs and there won't be potential issues with qualifying after closing if you have any personal circumstances change. These changes would include things like job loss, for example. The downside to a one-time close loan product is that the interest rate is quite a bit higher.

The alternative is to structure it with two separate loans, or a two-time close. This means you purchase the property and construct the home with construction financing, and when the home is complete, a lender will come in and refinance you to permanent financing. The downside here is that you will have two sets of closing costs. However, the advantage is that the interest rate will be quite a bit lower (assuming that rates hold steady while the home is constructed). The two-time close is the more common of the two options.

Each financing type has its own pros and cons.

If you have more questions about financing a new construction home in the DFW area, give me a call or send me an email. My team and I would be more than happy to help you.