Construction loans for building a home in New Hampshire

How does a construction loan work?

Instead of paying a seller in one lump sum at closing, the lender releases money to your builder in stages as the work is done. While the home is being built, you usually pay only on the money that's been released so far. When the house is finished and passes its final inspection, the loan becomes a standard mortgage with regular monthly payments.

What's the difference between one closing and two?

• One-time close (construction-to-permanent). You close once, before construction starts, on a loan that covers the build and then converts to your long-term mortgage. One set of closing costs, and your permanent loan terms are set from the start.
• Two-time close. A short-term construction loan pays for the build, then you close again on a separate mortgage that pays it off. You can shop the permanent loan when the house is done, but you qualify twice and pay two sets of closing costs.

Which is better depends on your timeline, your builder and how much flexibility you want. Tom can lay out both side by side.

How does the builder get paid?

The construction budget is paid out in draws. A typical schedule ties each draw to a stage, such as foundation, framing, mechanicals and finish work, and the lender usually has the work inspected before releasing money. Lenders generally want a written contract with a licensed, insured builder, a detailed budget and a draw schedule. Many lenders don't allow you to act as your own builder.

Build some cushion into your budget. Change orders and price increases during construction are common, and the loan amount is set before the work starts.

How is a home appraised before it's built?

The appraiser values the home as it will be when it's finished, based on your plans, specifications and the lot. That value, along with the total cost of the land and construction, sets how much you can borrow. Upgrades that cost more than they add to value can leave a gap you'd cover in cash, so it helps to review the plans with Tom before you sign the builder's contract.

What if I already own the land?

If you own your lot, its value can sometimes count toward what you put into the project, depending on the program and how long you've owned it. If you're buying the land too, some construction-to-permanent loans can include the lot purchase. Bring your deed, or the land purchase contract, to your first conversation.

What's different about building in New Hampshire?

• Septic and well. Lots without town sewer need a septic system designed and approved under NH Department of Environmental Services rules, and many need a private well. See the well and septic guide.
• Town permits. Building permits, driveway permits and any impact fees come from the town, and rules vary from one town to the next.
• Current use land. Building on land enrolled in current use can trigger a land use change tax. See current use land in NH.
• Property taxes. Your tax bill can change as the town assesses the new house. The property tax calculator shows what a finished home could cost each month in your town.

Which loan programs can finance new construction?

Conventional loans offer single-closing construction-to-permanent financing; Fannie Mae, for example, buys these loans once construction is complete and the loan has converted. USDA has a single-close construction loan for homes in eligible rural areas, built by a builder the lender approves. FHA and VA one-time close loans are offered by some lenders. Program rules, down payment requirements and lender requirements vary, so Tom checks which options fit your project across the lenders Elite works with.

What should I gather?

• House plans and specifications
• The builder's contract, budget and draw schedule
• The builder's license and insurance information
• Your deed or the land purchase contract, plus any survey and septic design
• The usual income, asset and credit documents for a mortgage

The document checklist builds the income and asset list for your situation.