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Build a home on your own land using a One-Time Close construction loan or buy an existing property? There are some questions to ask yourself about your financial needs and goals that could change your mind about choosing one path or the other.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

Should You Build a Home or Buy a Home?

October 6, 2020

Should You Build a Home or Buy a Home?
Build a home on your own land using a One-Time Close construction loan or buy an existing property? There are some questions to ask yourself about your financial needs and goals that could change your mind about choosing one path or the other; you might be surprised at the options open to you when considering a purchase loan or a construction mortgage.

Buy or Build? Your Immediate Needs Count

Not sure whether to buy a home or build it instead? The first question to ask yourself involves the urgency of your needs--if you need to get into a new home as soon as possible, an existing construction mortgage to purchase a home is a smart choice.

Applying for a mortgage loan can take time, but not nearly as long as it might take to build one instead. You’ll have contractors to hire, plans to approve, and the construction phase will take as long as is necessary to get the job done properly.

Some might view the above in the negative, but this is more about being pragmatic. Borrowers who have the luxury of more time (and there are plenty) should seriously consider building on their own lot or a parcel of land acquired in conjunction with the construction project, especially if customization is more important to you than the speed of completion.

How Long Do You Plan on Owning the Home?

If you’re looking for a smaller first home, there’s nothing wrong with using a construction loan to build it. But if you know you will grow out of that property at some point due to an increase in family size or other planning, it may be smart to consider a construction loan for a property you intend to use more long-term.

Those who want to build a home as an investment (meaning you want to build up equity over time with an eye on possibly using that equity at a later point) might do well to consider a construction loan like the One-Time Close mortgage to build a home they feel comfortable staying in for a long time.

What Are Your Financial Resources?

Lenders offering One-Time Close construction mortgages generally don’t allow downpayment assistance on construction loans. This is NOT an FHA loan rules limitation but rather the choice of the participating lender.

If you think you may need financial assistance in the form of a downpayment grant, it may be wise to consider your options with an FHA mortgage for an existing construction property since down payment assistance may be allowed and the down payment for the loan is the same low 3.5% for those who financially qualify for that down payment.

Those who do not qualify for a 3.5% downpayment may still be approved for an existing construction loan with 10% down, but in general if you don’t qualify for the lowest down payment, a construction loan may not be your best option. Talk to a participating lender to determine what the best mortgage loan for you might be based on your financial goals, needs, and your current credit scores.

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