Can a USDA Loan be Used to Buy a New Construction Home?
Remember that while new construction homes can be available in suburban communities, rural areas are also experiencing a high demand for those new construction properties!
However, buying a home in a rural area may hold a distinct advantage because a USDA No Down Payment loan can be used to buy a new construction home in an eligible area!
In today’s video, I will share how a new construction home can be financed with a USDA loan and explain the different ways a USDA loan can be used to buy a new construction home.
Plus, before we get started, please download our USDA Blueprint for Success. This free guide is designed to walk you through the USDA process step-by-step and is a great tool for both homebuyers and realtors alike.
USDA New Construction Homes
As a starting point, USDA guidelines defines a new dwelling as:
- one that is “under construction” to be built
- or a “dwelling that is less than one year old and has never been occupied”
Next, the type of loan needed will determine how we structure the USDA financing:
- USDA Construction to Permanent Loan (also called USDA Single-Close): This feature can be utilized where an approved builder does not have their own funding and they need you to close on a construction loan upfront in the process. This then allows them to receive loan draws in order to build your home.
- USDA New Construction Loan – “End Loan”: This type of financing does not provide loan draws to the builder. Many refer to this as an “end loan” because it would be used to pay off any construction loan that the builder may have taken out to finance the construction of the property.
In an “end loan” scenario, the builder is able to fund the construction of the property whereby Metroplex would then be responsible for establishing the permanent residential USDA mortgage at closing after the home has been completed.
Today’s topic will focus on end loan financing. In this scenario, you will see how a USDA no down payment loan can be used to buy a new construction home.
USDA 100% Financing – New Construction Homes
In some cases, a builder has their own funding sources set up and does not want to go through an approval process as required under the USDA Construction to Permanent Loan.
Instead, the builder completes the construction of the home with their own funds and then receive their construction proceeds at the time of closing.
In this situation, many times loan qualifying has been started months prior to the completion of the home. Plus, it requires the lender to be diligent about monitoring the expiration dates of the appraisal, along with the borrower’s income, assets, credit, and employment.
However, because of our proven track record and being a top-ranked USDA lender, we have established procedures in place to monitor the loan file. Making us as proactive as possible during the construction period.
Additionally, if a builder has a spec home that is under construction and a buyer contracts with them to build the home, the USDA Construction to Permanent Loan would not be available since the home has already been partially constructed. In this scenario, the builder will complete the construction and then receive payment at closing as discussed above.
Buy a New Construction Home with a USDA loan
As you can see, a USDA loan can be used to buy a new construction home!
In this case, it’s vital to know how the financing of the new home build is structured. This determines the type of USDA loan funding and when those funds are available.
A USDA Construction to Permanent Loan is used to close on a construction loan in order to receive draws to build the home. On the other hand, if the builder has their own financing, it allows you to wait until closing for your USDA new construction loan to be established.
Please note that everyone’s situation is unique such as a fingerprint, so please reach out to my team for any specific questions.
Remember, we are known for our USDA loan expertise – Just call or email to discuss your scenario and let us show you the “Metroplex” difference.
800-806-9836 Ext. 280
I want everyone to make it a great day, and look forward to seeing you right here for the next tip of the week!
P.S. – You can download our FREE “USDA Blueprint for Success” by CLICKING HERE.