Building a custom home in Northern New Jersey is a dream come true for many people, families, and couples. You can choose your ideal location — close to the city, tucked away in a scenic rural town, or in proximity to both in the stunning suburbs. 

When it comes to budgeting, it’s not as much fun as visualizing your new layout or picking out inspiration photos. But understanding all your financing options will make your dream of a custom, unique home feel more concrete. 

In this article, we’ll be covering the most common types of construction loans as well as some frequently asked questions about financing. Read on to learn more about:

• Two common types of construction loans 
• If traditional mortgages can finance a custom home 
• Whether you can use home equity to finance a custom home in NJ
• Incentives that can make your dream home more affordable

Construction Loan Options: How to Finance Your Custom NJ Home 

The most common way to finance a custom home in New Jersey is with a construction loan. A construction loan is a shorter-term loan that covers the cost to build your new house. Costs included are usually the land, your general contractor or build team, materials, and labor. These differ from mortgages in the term. 

A traditional mortgage is usually fifteen to thirty years. A construction loan is usually up to two years, allowing enough time for the build to take place. There’s more than one type of construction loan: stand-alone and construction-to-permanent. 

The Two Kinds of Construction Loans 

Your decision about which type of construction loan will depend on your specific financial goals.

Construction Loans 

Construction loans offer the funds to pay for your home, and are first accessed by analyzing your credit score, down payment, and debt-to-income ratio. Then, you’ll need to present approved plans and an appraisal. 

When you have this type of construction loan, you’ll access money in “draws.” This means you’ll have inspections at certain milestones to release more funds so the project can progress. At the end of your construction, you’ll have until the end of your loan term to either repay in full, or convert it to a traditional mortgage, requiring a second close. 

This type of loan can be a good option for folks who need upfront funds to support the custom home but are confident of a short-term repayment plan and can put 20-20% cash down. 

Construction-to-Permanent (Single Close)

Another great option is a construction-to-permanent loan. This loan offers the ability to get a construction loan and convert it to a traditional mortgage in one closing transaction.  

However, construction-to-permanent loans are typically set up so you pay only interest while the build is underway, and start paying down the principal after your home has a certificate of occupancy. While this may sound like a downside, it offers more flexibility if you’ll need more than two years to pay in full for your home build, and acts more like a traditional mortgage over the long-term. 

Frequently Asked Questions About New Jersey Custom Home Projects 

Are Traditional Mortgages Able to Finance Custom Homes? 

No, a traditional mortgage is unfortunately not an option to finance a custom home. A newly built home doesn’t offer immediate collateral to the bank — that’s why a construction loan is necessary. 

Can I Use Home Equity to Build a New Home?

You can! If you own your home, you can borrow against your home’s equity. HELOCs give you the cash you need immediately instead of having to wait for project milestones to access draws. However, HELOCs have variable rates while construction loans have fixed rates.

Are There Custom Home Incentives in New Jersey?

New Jersey offers incentives for custom homes that exceed standard energy codes through the state’s Clean Energy Program. These incentives are tiered, meaning you can earn a higher rebate amount for achieving top certifications like ENERGY STAR or Zero Energy Ready Home. 

Additionally, working with a knowledgeable partner can help. Builders can stack these state incentives with federal tax credits and utilize property tax exemptions for incorporating renewable systems, such as solar power, into the design. 

Learn More About Financing Custom Homes in New Jersey

White Maple Construction helps homeowners understand how to finance their custom homes. We work with homeowners to design their dream homes and understand every step to making it a reality. 

First, we’ll work with you for a consultation, where we’ll understand your goals and requirements. Then, we offer a detailed pre-construction process where we develop your plans, finalize selections, and provide a detailed budget to ensure you understand your financing needs.

To learn more about financing your custom home in New Jersey, get in touch with White Maple Construction today.