Looking to embark on a residential construction project? 

Everest guides you through the ins and outs of all things SFR financing. 

Today we’re talking all things construction loans!

Maybe you’re in the market to buy, but can’t find the right home. Or perhaps you’re looking into single family residences (SFR) and two-family properties for a future investment. 

Whatever your situation, one thing remains the same. 

Financing this kind of residential building project is very different from buying an existing home. Rather than pursuing a traditional mortgage, you’ll be taking on a construction loan. 

Grab your hardhat—we’ve got a lot to break down! 

Building a dream

The prospect of building a home from scratch is beyond intimidating! But if you have the time and you’re up for the challenge, this could be a rewarding (and profitable) experience. 

Sure, you may have to put off moving day. But people who choose to construct a primary residence (or owner-occupied multifamily) enjoy a host of advantages. 

Not only will your home be brand new and customized to your exact preferences. It will also be current on codes, more energy efficient, and equipped with the latest technologies. Not to mention, you get to happily avoid today’s stressful house hunting and bidding wars. 

Single- and two-family residences also make wonderful investments. 

No matter where you reside, there will always be high demand for standalone homes. If you’re not quite ready for a big commercial investment, owning a two-family is like getting your foot in the door! And a single-family property can always be rented out down the line.

Despite their perception as costly and complicated, construction loans are actually really popular. Check out these stats from Bankrate.com.

Residential Construction Stats

  • In Q4 of 2022, commercial and non-commercial construction loan volume totaled $467.64 billion, the highest since Q2 of 2011. 

  • Privately-owned housing starts in April 2023 were at a seasonally adjusted annual rate of 1,401,000, which is 2.2% higher than March. 

  • After somewhat of a slump, builders’ confidence in the housing market increased every month since December 2022. 

Reported by BankRate and U.S. Census Bureau

So, what’s it going to cost me? 

Good question! 

New construction can be scary because it’s notoriously difficult to estimate. When seeking financing, it’s important to account for all the various costs associated with building a single-family or two-family residence. Luckily, Everest is here to help.

What are hard costs? 

Your brick-and-mortar budget! Hard costs include anything related to the physical construction of the home including building materials and labor costs. Your general contractor will typically provide a breakdown of all hard costs, making them somewhat easier to estimate. 

  • Construction materials: wood, steel, siding, roofing, nails, screws, etc. 

  • Building site materials: utilities, cement, equipment, paving, HVAC, heating, etc. 

  • Landscaping materials: trees, grass, mulch, plants, flowers, bushes, walkways, etc. 

  • Labor costs: general contractor and subcontractors (plumbing, electrical, etc.) 

What are soft costs? 

Anything intangible! When doing a ground-up construction project, there are other expenses you are responsible for outside of your builder’s budget. Soft costs include the money you will need to acquire the land, surveys, and other administrative and design requirements. 

  • Land/property acquisition

  • Architectural and engineering services

  • Landscape and interior designers

  • Permits and application fees

  • Site analysis (survey, geotechnical)

  • Interest-only mortgage payment during construction

  • Annual taxes during construction

  • Property liability insurance

What about closing costs? 

Yes, there’s more! When doing a home construction project, you’ll encounter other one-time and ongoing payments. These miscellaneous items fall under closing costs and are associated with the actual loan itself (more on that below!). 

  • Construction draw fee

  • Appraisal fee

  • Bank attorney

  • Title and recording fees

  • Mortgage tax

  • Optional points for lower interest rate

It’s important to keep in mind that some of these expenses can be financed, while others cannot. Be sure to consult with your loan officer to discuss a game plan and learn about the diverse products out there for buyers looking to build. 

What kinds of construction loans are available? 

This is where your trusted Everest loan originator comes into play! When seeking financing for a SFR project, there are different loan configurations. One of our experienced experts can help you decide which type is right for your situation. Here are two popular options. 

  • Construction-to-permanent loan. Also known as a “one-time close” or “single-close loan,” this type of construction loan allows you to take out a line of credit, which your contractor draws from at various stages of construction. Meanwhile, you (the buyer) make interest-only payments. Once the draw period concludes and your home is complete, the loan converts to a typical mortgage. 

The perks? This option eliminates the need to pay for a second set of closing costs, requires only one application, and once you’re approved, you’re ready to break ground. Easy breezy! 

  • Construction-only loan. Some borrowers will choose a construction-only loan if they’re on the hunt for a good deal on their permanent mortgage. Or, sometimes they don’t need one at all! Under this arrangement, the lender offers just enough cash to cover the project costs, which are dispersed in phases similar to a single-close loan. You will make interest-only payments until the job is done, upon which the principal balance is due in full (usually within 1 year). 

The perks? A construction-only loan gives you the time and freedom to shop around before committing to a more permanent product. You can apply for your forever mortgage as soon as the construction loan is settled. 

Hope these pointers help inform your upcoming project. Happy building! 

Everest says: make your move before you’re ready 

Everest Equity

Building dreams since 2004

From construction-only to construction-to-permanent 

to VA and FHA construction loans, trust Everest Equity 

with all your single- and two-family financing needs!