Homeseekers often assume that building a new home is not an option if they don’t have cash to build a house and are currently paying a mortgage on their existing home. After all, who wants to pay two mortgages throughout the construction process?

Fortunately, there are solutions available that reduce the amount you’ll have to pay while your new home is being built and simplify the process of qualifying for a loan to cover building your dream home.

Avoid taking out a conventional mortgage on your own

One of the biggest homebuilding hurdles for those who already have a mortgage is thinking they need to take out another conventional mortgage for their new home. If you are building a home, or even buying a pre-construction home, a conventional mortgage is not the right option. Getting a conventional mortgage would be difficult, especially if you try to do it on your own, because lenders are reluctant to loan money for a home that is not yet built. Therefore, it is best to secure a loan product designed for new home construction.

Instead, obtain a construction-to-permanent loan

Construction-to-permanent loans are short-term loans that release funds gradually as work progresses to cover construction costs. 

Construction-to-permanent loans from a TJH preferred lender, such as Kinecta Federal Credit Union, eliminate the need to pay two mortgages while your new home is being built.* Payments are more affordable because they are interest-only, based on the outstanding loan amount. Through the draw process, the lender disperses funding to TJH as progress is made on your home. After your final home inspection and/or certificate of occupancy, the loan converts to a mortgage and principal payments begin.

One of the biggest concerns we see is that most people think they have to qualify for two homes and pay two mortgages. The reality is that they won’t have to make a mortgage payment on the new home until it’s complete. At that time, they can sell the old home and apply that amount toward the new loan.

Tayt Ianni, Senior Mortgage Loan Consultant, Kinecta Federal Credit Union 

Go with a lender that specializes in home building

If you borrow from a lender that is inexperienced in homebuilding, you may end up with a second loan closing for your mortgage at a higher interest rate after your home is complete. 

Our preferred lenders offer construction-to-permanent loans with a one-time close to lock in your rate. As a result, you save thousands in additional closing costs. 

Lenders like Kinecta also fix your interest rate before construction starts, and that rate will remain the same once the loan converts to a traditional mortgage. Therefore, you don’t have to worry about interest rate hikes leading to a higher-than-expected monthly payment on your new home. You know exactly what you will pay throughout the construction phase and after move-in.

Find the right loan for your home build

In order to finance building the home of your dreams, you may need financing that goes beyond what is offered by conventional mortgages. With the help of our preferred lenders, you can have access to the right home, right where you want it, and the financing you need to get there. 

Our preferred lenders offer portfolio jumbo loans, which are more flexible, generally at much lower interest rates, than conforming loans that must adhere to the standards put in place by Freddie Mac and Fannie Mae.

Our preferred lenders also work with clients to find the right mortgage and terms for their specific situation. They provide financing based on the future appraised value of your home after it is built, which may lead to lower payments, depending on the appraised value ratio to the existing mortgage principal.

People are often surprised by what we can do for them and find our rates to be extremely competitive.

Tayt Ianni, Senior Mortgage Loan Consultant, Kinecta Federal Credit Union 

Opt for an end-to-end solution

Securing a construction-to-permanent loan can be a challenging process, requiring homeseekers to prove their home-building project is low-risk for the lender. TJH’s reliable construction schedules, price guarantee, end-to-end process, and reputation as the largest single-lot, replacement homebuilder in the nation give lenders a lot of security in greenlighting your project.

We also provide land concierge services for those looking for a lot or homesite in the coolest neighborhoods in Southern California, Northern California, the Pacific Northwest, Colorado, and Arizona. We’ll find you an off-market property on which to build your new home if you do not already have a homesite. Our preferred lenders offer construction financing that can include the cost of your land in your loan, eliminating the need to secure a separate land loan.

Financing a TJH home build is easier and more attainable than many realize. We offer an all-in-one loan with a one-time close. This avoids the stress and costly transaction fees typically associated with separate construction-to-permanent rollover loans. Instead, our process is the same as a traditional mortgage, just in advance of the house being built.

Tayt Ianni, Senior Mortgage Loan Consultant, Kinecta Federal Credit Union

*Kinecta Federal Credit Union and Thomas James Homes are not affiliated. Membership requirements apply. NMLS (Nationwide Mortgage Lending Service) ID: 407870. Subject to credit and property approval. Rates, program terms, and conditions are subject to change without notice. Not all products are available in all states and for all loan amounts. Other restrictions and limitations may apply. The actual terms of the loan will depend upon the specific characteristics of the loan transaction, the applicant’s credit history, and other financial circumstances that may apply.