Financing options make building a dream home easier

For 53 years, the Annual Spring Parade of Homes, presented by the Home Builder’s Association of Greater Kansas City (HBA) and sponsored by Stewart Title, has showcased the metropolitan area’s premier new homes, home builders and communities offering the latest in new-home design, construction, technology and more.

This year’s Parade, which runs April 25 through May 10, features 340 single-family homes, townhomes and maintenance-provided villas constructed by 109 Kansas City area builders across eight counties on both sides of the state line.

Regardless of what type of home one chooses, financing is a big part of the purchase process for buyers. Researching the borrowing options available before beginning a home search and finding the right lender to suit your needs and desires is important, especially when considering new construction, which can require a different type of loan.

“Working with an experienced lender, one that understands the loan process and can outline the important steps and timetable, are vital to a successful relationship,” said Joe O’Flaherty, senior vice president with Country Club Bank.

For those desiring to build their dream home, O’Flaherty said, “The homebuyer should make sure their lender has significant experience working with construction projects, and that they are thorough and up front about all the potential issues that could arise.”

“We first review the needs of the buyer and the scope of the construction project to tailor a program that will work well for both builders and borrowers,” explained O’Flaherty.

Unlike a typical purchase loan where 100 percent of the loan funds are disbursed on the first day and the borrower immediately begins permanent payments, a construction loan is a short-term loan (usually nine to 18 months) where the borrower is typically charged interest on the amount of the construction loan that is used, with the loan balance increasing as the construction project proceeds. After completion of the home, the loan is then replaced with a long-term, conventional mortgage.

Alan White, who specializes in new-home construction lending for First Federal Bank, agrees that the strength and integrity of the lender are more important on any type of construction financing.

“The homebuyer wants to form a relationship with a lender that will be there throughout the process, and has the experience and dedicated staff needed to handle this type of financing,” White said. “The buyer should ask questions like, ‘How long has the lender been doing this type of financing?’ ‘Has the lender worked with builders in this area?’ ‘Is the builder willing to work with the lender?’”

White notes that unexpected costs are not common on the lending side, but are possible on a construction project. Examples include hitting rock while digging the foundation, plan changes after project commencement or upgrades that exceed the builder’s allowance.

“As the lender, we monitor the draw process, review and pay the bills, inspect the property, and monitor the necessary reporting to the IRS on any payments made to unincorporated subcontractors,” he said. “The customer deals with us before and after the closing, as we are also the servicer of the loan, and payments are made to us right here in the KC area.”

The Parade of Homes includes all areas of the Kansas City metro area, allowing buyers to see a wide range of home prices, amenities and locations. To assist prospective homebuyers, the HBA has compiled a free Parade Guide book that highlights each home, including floor plans and prices, an online home search tool at KCParadeofHomes.com and a mobile website feature for searching homes by features such as price, location and school district.

This story was originally published April 18, 2015 at 7:00 PM with the headline "Financing options make building a dream home easier."