The final phase of our process is when we’ll meet with you to discuss financial funding arrangements and review accounting procedures. We believe in total transparency. You will never be surprised when it comes to the financial details of your new home construction. You’ll see how your money is spent in real-time and a third-party accountant signs off on any spending each week to ensure oversight.

Financing the build of a custom home is different than a classic bank mortgage to buy an existing home. With a typical mortgage, the buyer purchases an existing home and the land on which it was built. If you’ve purchased a home in the past, you know that a classic mortgage is typically straightforward regardless of the loan type you may choose. A construction loan is the type of loan you will need to build your custom home on a piece of property that you own or are buying.

Financing Steps for Construction Loans

The three main transactions in custom home building are the lot purchase, the construction of the home itself, and the mortgage. For custom home construction, you will secure separate financing for each although various lenders may package certain types of loans together.

Generally, the first step is to secure a loan to purchase your home site. Second, building the new home is financed through a construction loan which is structured to release periodic disbursements to pay for the various phases of construction as the house is being built. Lastly, a mortgage will be secured for the completed home.

Step 1: Unimproved Property Loan

Unless you already own a piece of land outright or if you plan on paying cash for the property, the first type of loan you will need to secure is an unimproved property loan, available from a variety of financial institutions. The price of land and the interest rate varies depending on the value and location of the lot. As with most other loans, the size of your down payment will affect the terms of your unimproved property loan.

The closer to an urban area, the more expensive the land is likely to be. Consider various factors when searching for a lot including how close it is to a city, the potential value in the coming years, and local laws on land use and zoning. You will need to close on the lot before construction can begin.

To qualify for an unimproved property loan, the lender will ask some specific questions, like how much you can provide as a down payment, your annual earnings, the total cost (principal and interest) of the loan, its duration, and your financial history. A higher down payment may be required than for a traditional mortgage loan.

Step 2: Construction Loan

If your plan is to finance your custom home build, you will need to secure a construction loan. Construction loans are specialized and aren’t available at every bank. A reputable custom home builder will guide you through the process and may be able to help you secure the loan.

Construction loans are usually 12-18 months in duration depending on the size of the build and may require a down payment of 20% to 30% of the total loan.

The Different Types of Construction Loans

A construction-to-permanent loan, also known as a single-close loan, is a loan used to finance the cost of purchasing the lot, building a custom home, and later serves as the mortgage on the home once construction is complete. This type of loan is good for borrowers who want to build a custom home on a lot of their choosing and use a custom builder of their choice.

A standalone construction loan is a short-term loan that is secured to fund the construction of a custom-built home. Once the construction is complete, the loan must either be paid in full, or you must apply for a mortgage. The lender that provides the financing for construction but not the mortgage will likely want evidence of pre-approval of the permanent mortgage prior to approving a construction loan.

Step 3: Mortgage-Based Loans for New Construction

Once the construction of your new home is complete, you will need a mortgage, a permanent loan, for the completed home. If you took out a construction-to-permanent loan, it won’t be necessary to pay another set of closing costs. Mortgage-based permanent loans are the typical loan that most people use to buy a home.

Difference between a Traditional Mortgage and a New Home Construction Loan

A traditional mortgage will provide long-term financing for a home that already exists. The home is used as collateral to secure the loan. The loan period can be up to 30 years and the borrower will make payments towards the principal and interest for the entire length of the loan. It’s a best practice to shop around for a mortgage. There may be differences in rates and some mortgage providers charges higher upfront fees than others.

A new home construction loan, however, doesn’t have an existing home to use as collateral. This type of loan is a short-term loan for the time it takes to construct the home. Without a completed home the financial institution can use as collateral, most lenders require the homeowner to put in the required 20%-30% equity in the beginning before the loan proceeds are utilized. The custom home builder that you choose will need to be approved by the financial institution handling your construction loan. The builder must prove creditworthiness and have a history of completed homes.

 

Once the loan is secured, construction can begin. Funds from your lending bank are disbursed as needed by the builder instead of being granted all at once. This way, the customer only pays interest on the loan proceeds as they are disbursed rather than the full amount of the loan. Disbursements are called draws and the lender will ask an inspector to verify that various milestones have been met before the next draw is approved. Total Quality Home Builders will ensure that milestones are met and that all subcontractors and suppliers have been paid.

Securing financing prior to building a custom home provides the security of knowing there will be funds available throughout the entire construction process. As with any loan, you and your bank are taking on risk so be sure to partner with a reputable builder. Total Quality Home Builders will help you through the process of obtaining the best financing possible for your dream home.

New home construction is typically one of the largest investments most people will make in their lifetime. One question that we’re asked time and time again is “How much does it cost to build a new house?”

During our previous processes, we’ve determined the major details of the home, including the number of rooms and size of the house, the architectural design, amenities, the septic system, and the orientation of the home on the lot. Each step will have an impact on how your home will be designed and built, and the final cost to construct from start to finish.

Once the final on-site layout is complete and approved by all parties, Total Quality Home Builders will provide a good faith estimate for review and approval.

New Home Construction Loan Versus the Traditional Mortgage

A construction loan differs from a traditional home loan. With a traditional home loan, the borrower makes a down payment, takes possession of the property, and makes a monthly mortgage payment to the lender. With a construction loan, the borrower is asking the lender to estimate the value of a property that does not yet exist and then lends you money to create it. The risk to the bank is much greater, so there is caution when lending funds for new home construction.

Final Costs of Your New Home

The final cost for new home construction will depend on where you are building and the readiness of your lot, among other things, but it also depends on “premiums” – the differences in finishing both the exterior and interior of the home. There is a base price per square foot that includes basic exterior and interior elements, but that price will increase should you prefer top-of-the-line, or “premium” elements.

Good Faith Estimate

As we go through the process of planning your new home construction, we will document estimates of each cost, including the formulas used, so you can clearly see how elements are budgeted. You then have a better idea of what premiums you can add in, and how much each premium will add to the cost of the home.

Once we have all the details, we’ll establish a budget and create a Good Faith Estimate for your approval. Our process is 100% transparent and our goal is to minimize surprises during the construction process.

Next up in Part 12: Homeowners Association Application, we’ll discuss the process of applying with your community Homeowners Association and the rules and regulations for new home construction.

The Lake Keowee area is a rural community and because of the character of the land, most homes are built in areas without access to city water and sewer utilities. When building a custom home on Lake Keowee, a septic permit for a septic system is necessary when your lot doesn’t have access to a public sewer system. In the state of South Carolina, having and installing a septic system is regulated by ordinances and rules to ensure proper health standards are met.

Securing a Septic Permit

The South Carolina Department of Health and Environmental Control (DHEC) is the department responsible for the regulations for the installation of septic systems. Total Quality Home Builders will work with the local planning and zoning office, submitting all of the required paperwork and fees, for permits and clearances.

Construction, repair, maintenance, or cleaning of a septic system by a business requires a valid license from the South Carolina DHEC. Total Quality Home Builders is required to submit the proper septic permit application for a Permit to Construct a septic system from the county health department, and, once approved, the permission is awarded. The county health department will verify whether the terrain and soil on your lot are suitable for the construction of a septic system. The inspection of the property will verify there’s no chance of groundwater contamination as well as other possible health hazards. The construction of the septic system must comply with the parameters of the permit.

Septic System Design

Your builder will design a septic system that suits the area in which it will be built as well as one that is appropriate for the soil in which it will be installed. Municipality inspectors from the health department will perk the property and consider which design is needed based on the soil type. Your local health department inspectors will provide Total Quality Home Builders with strict requirements based on the land and the size of your new home.

Installing a New Septic System

Once the septic system design has been decided and the appropriate septic permit has been awarded, the work of installing your system will begin. Depending on the size of your home, an appropriately sized septic tank will be installed into the ground along with the necessary drain fields. Because the tanks are generally large, installation requires heavy equipment to dig the area for installation. All aspects of what will be needed to complete your septic tank installation for your new home are included in your Good Faith Estimate.

The master site plan, sometimes referred to as a plot plan, is a diagram that shows planned improvements to the lot on which you are building a custom home. A site plan typically begins with a field survey to define property lines and to map out the topography of your lot. This plan will be used for staking the foundation footprint of your new home with offsets for excavation. The site plan will include:

• Property lines
• Setbacks
• Easements
• Grading
• Existing natural elements
• Landscaping features
• Structures
• Driveways
• Fencing
• Utilities

Master site plans may be required by county governments

The relationship between what exists on the land and improvements to a piece of property is one of the most important aspects of a well-planned master site plan. Because different building authorities have different requirements depending on local laws, not all site plans are created equal. Some permits may require your builder to hire a land surveyor, which is standard procedure for all custom home construction at Total Quality Home Builders. An experienced builder will verify with the county permitting department for clarification prior to proceeding.

County governments require master site plans to confirm that local and state building codes are followed when making major changes to a property. Site plans are typically retained by your county government as a historical record of the property, especially when significant changes, like building a home, are made to the lot. In general, the master site plan shows the details of all proposed improvements or additions to a specific plot of land.

Floor plan and topographical survey

As we learned in Part 5: Architectural Design & Floor Plan, Total Quality will request the surveyor to overlay the proposed footprint of the house floor plan over the topographical survey. We’ll discuss with you the ideal placement of the home to take advantage of the views and natural beauty of the property and mark locations for the septic tank, driveway, landscaping, and any other improvements included in the design of your new home. As part of our complete transparent process, we won’t stake the home until you’ve approved the plan.

In some instances, your HOA may require approval of the master site plan before construction can begin. Total Quality will work with your HOA to ensure that all required documents are submitted and approved.

Next up, in Part 8: Land Clearing and Underbrushing, we’ll review the process of getting your lot ready for construction.