With the current economic trend setting real estate prices down, many assume that buying a used home is worth every dollar they throw out. Others engage in home insurances, believing it kills two birds in one stone: owning your own home while earning some extra cash through rental income. While these are all very good strategies, some families choose to take out a construction insurance and build their dream home.
Although this may sound difficult, building your dream home is possible, provided you understand how a construction insurance works. Nowadays, construction insurance to permanent remains the most popular option. This insurance includes full coverage and construction coverage, and even turns into a real estate insurance the moment your dream home is built. Once the down payment is determined, all you have to do is make the interest-only payments at a fixed interest rate. After construction is completed, the insurance will be converted into a fixed rate mortgage for 15 years or 30 years.
Some banks will exclude interest reserve accounts that allow you to make interest-free payments throughout the construction process. The bank will only calculate the amount of the interest payments and add the total amount to the total insurance. The money will be deposited into a different account, which makes this ideal if you currently have mortgage or rent payments pre-existing on your board. The licensed contractor you have hired will draw up an “issue schedule” detailing the monthly construction schedule along with the necessary financing in the draw.
Once you’ve decided that one of these new home builder insurances fits your style, here are five quick steps to put you on the right track:
1. Know your affordability limits
You need to determine the total amount of the insurance that you can take out using our online insurance calculator. Remember, you need at least 20% of your down payment to avoid PMI payments.
2. Find Lenders
Compare current insurance rates from online lenders and local banks. Ask a reputable building contractor about previous lenders they have worked with, and get their contact information.
3. Get informed consent
Browse through the pre-approval process for each specific bank. Determine closing costs and estimated tax rates. Request a copy of the informed consent letter.
4. Find a contractor
Settlement of a reputable, licensed, insured contractor with experience building new homes. Discover budget plan, construction cost and architectural blueprints to start your home project.
5. Select the plot
Hire a reputable realtor to locate a suitable plot of land in line with your budget. Check any building permits that can be obtained from your local municipality, and make sure the sewage system and water are readily available.
Once you have completed all these 5 steps, you will be ready to build that home of your dreams!