Homebuyers’ priorities have shifted since the coronavirus pandemic. The demand for property in more rural areas of the country has increased.
Many people are now in search of more space, larger homes and additional privacy in a post-pandemic world that encourages remote work and a greater work-life balance.
What's in this article?
If you’re among those who want to build your dream home in a rural area, Compass Mortgage can help. In this guide, we’ll share how you can finance the building of your rural home with a one-time close construction loan.
How to build a home in a rural area
Cities draw in millions of people due to the ample work opportunities, entertainment, nightlife and resources.
A smaller but notable percentage of Americans—approximately one in five, according to the Census Bureau—prefers rural areas to bustling city life.
Rural areas naturally provide a small-town feel; and they offer a lower cost of living, access to nature and added privacy.
Studies have shown that the pandemic spurred a push to rural living, due to the shutdowns, layoffs and an increase in remote work.
Whether the pandemic fueled your desire to build a home in a rural area or if it’s been a lifelong dream, you’re far from alone. However, it can be difficult to make this dream a reality without the right loan options.
There are many rural development loan options, but the most effective loan for building a rural home combines both a new construction loan and a permanent loan for a seamless, single-close experience.
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What does a construction loan cover?
To build your dream home in a rural area, you’ll need a new construction loan to cover the full costs to plan and construct your house.
New construction loans cover the following:
- Land purchase
- Permits
- Plans
- Builder’s insurance
- Inspection and administrative fees
- Landscaping
- Building costs
Construction loans also should cover the costs of installing utilities and a septic system, a process which is often a more complicated and time-consuming endeavor for rural development.
In general, new construction in a rural area can be more complex than in cities or suburban areas because builders can face difficulties accessing the site due to hills, wooded areas, water or other causes which limit access.
As a result, borrowers must find lenders who are experienced in rural development loans. Lenders must be able to skillfully structure the loans and understand the scope of a rural project.
How does a one-time close construction loan work?
Traditionally, borrowers get a construction loan and a permanent loan separately.
This means that they have to apply and qualify for a new construction loan that covers the full costs of building, then apply for a separate loan for permanent financing.
Rural development loans are already covering costly projects. If a borrower has to pay closing costs and fees for not one, but two separate loans, this can significantly increase the costs involved.
Fortunately, there’s another option: one-time close construction loans.
One-time close construction loans roll up two loans into a single transaction and closing by combining a construction loan with a permanent mortgage loan.
Benefits to a one-time close construction loan include:
- Borrower does not need to requalify once construction is complete
- Overall costs of the projects are lower with a single closing
- Loan process is simpler and more straightforward
Compass Mortgage offers a Build and Save: 2 Loans – 1 Close program for our borrowers seeking a rural development loan and permanent financing—all in one simple closing.
How to qualify for Compass Mortgage’s ‘Build and Save: 2 Loans – 1 Close’ program
Compass Mortgage’s Build and Save: 2 Loans – 1 Close program allows borrowers to reduce overall costs and lock in the interest rate before their house is built.
Once the construction of your home is completed, your loan will convert into a permanent, 30-year fixed-rate mortgage.
Take a look at the qualifications for Compass Mortgage’s one-time close construction loan:
- Minimum credit score of 680 for conventional loans (660 for FHA, VA and USDA loans)
- Financing loan amounts from $175,000 to $726,200
- Down payment as low as 5% for conventional loans, 3.5% for FHA loans and 0% down when combined with a VA loan
- Owner-occupied and second homes
- Builder must be approved
Steps of a one-time close construction loan
Borrowers will apply for the loan and submit all required documentation, including the building plans, financials and timelines.
Once approved, you attend a single closing. Then, your construction team can break ground on the project.
Closing costs and fees for one close can range from 3-6% of the total cost.
You will potentially save thousands of dollars with a one-time close construction loan, as opposed to obtaining separate construction and permanent loans.
Apply today with Compass Mortgage
If you’re ready to break ground on your dream home with a rural development loan, apply now with Compass Mortgage.
Our team strives to make the lending process as simple and straightforward as possible but with a personalized touch. We promise to be your advocate and partner throughout every step of the process.
As part of our commitment to a better mortgage experience for our borrowers, we offer an exclusive Get Committed® program.
In a market that is experiencing interest rate volatility and stiff competition, we are proud to provide our borrowers with a fully underwritten loan commitment that locks in your interest rate before you even find the property you want to buy.
A loan commitment essentially has the power of a cash offer, showing the seller you’re fully approved financially and that your deal isn’t likely to fall through.
Let’s get started: Apply today for our “Build and Save: 2 Loans – 1 Close” program, or contact us here for any additional questions or concerns you may have.
We can’t wait to help you build your new home in the peaceful rural area of your dreams!