What are the pros and cons of builder-financed construction?


Is it good to use builder-financed construction when having your new home built for you? This is a common issue for homebuyers when securing financing for a new construction custom-built house.

Usually, the question is should the builder take the construction loan and take a permanent mortgage right after construction is completed? Or, the buyer should go for a single construction-to-perm mortgage?

The advantages and disadvantages of having the builder finance the construction of your new home are:

  • You will have to take only one, permanent mortgage if the builder finances construction.
  • The builder will strive to finish the job as soon as possible to pay less interest on the costly construction loan and delays are unlikely.
  • If the homebuyer is financing their new home construction they have more power to ask for design modifications during the construction process.
  • Changing land title will be required if the builder finances construction upon house completion and prior to the homebuyer closing on the permanent mortgage.

Do not compare new home construction quotes from builders who finance construction to quotes where the buyer will have to finance construction, as those are incomparable.

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