As the saying goes, “If you want a job done right, do it yourself.” It’s a simple adage that’s central to your lifestyle, whether you’re growing your food, chopping wood or building a homestead. If you want to feel satisfied with the final product, you can only trust yourself.
Of course, buying land and building a homestead is a significant commitment. It’s more substantial than the average project, and your approach should reflect that. You need to draw on the expertise of various professionals and secure funding from a reputable lender who understands your goals.
You’ll just have to learn more about how to finance building your homestead. Only then can you move forward with confidence. With that in mind, we’ll walk you through the standard options for financing your build.
USDA Single-Close Loans
The United States Department of Agriculture provides loans for those who live or want to live in specific rural and suburban locations. These USDA rural home loans are part of the Rural Development program, an initiative to improve the quality of life for Americans in rural and suburban parts of the country.
If you intend to live in an eligible area, you may qualify for a special type of construction loan. The USDA’s combination construction-to-permanent loan, or “single-close loan,” allows you to merge a standard construction loan with a traditional 30-year fixed USDA loan. This arrangement has many benefits.
With a USDA single-close loan, you save a lot of money in closing costs. Your lender also receives the loan note guarantee before construction, with the added confidence that note entails. In short, a USDA single-close loan is one of your best options for buying land and building a homestead.
However, you still need to meet the USDA’s qualifications. You must prove your U.S. citizenship, have a reliable income and show an acceptable credit history. Most lenders will require a score of 620 or higher, but you can still qualify for a USDA rural loan if you meet stricter underwriting requirements.
Typical Construction Loans
If you would rather seek a loan outside the USDA’s program, you still have options. Many lenders provide construction loans for people who want to buy land and build a home. These construction loans can cover both the purchase of the land and the construction process itself, saving you time and money.
Concerning the flexibility of these loans, you can build on property you already own or even renovate existing structures. They’re similar to a line of credit, where you borrow money only when you need it and only pay interest on that amount. As for the timeframe, these loans usually last less than one year.
At the end of the loan, you’ll get an appraisal and inspection of the completed property and refinance to a more manageable loan — which is ideal, as construction loans often have a higher rate than traditional home loans. Of course, as with USDA loans, you must meet the requirements of your chosen lender.
If you want a construction loan, you’ll need a good credit score and favorable debt-to-income and loan-to-value ratios. Consistent income is also essential, and the bank needs to approve your plans before you can begin construction. Make sure to review all your available options as you continue.
Finance Building Your Homestead
The USDA’s single-close loans are an excellent option if you’re planning to purchase land and build a homestead. Even so, you can still seek typical construction loans outside the USDA’s program if you want to look elsewhere. Either way, you’ll have the means to build a beautiful homestead with the financial security you deserve.