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Exploring Turn Key Vs Construction Financing

Exploring Turn Key Vs Construction Financing

October 29, 20233 min read

Hey there! It's TJ from the Bless to Build Foundation, sponsored by Sanctified Homes and Construction. Today, we're diving deep into the world of home financing, specifically focusing on Turn Key and Construction Financing. Both options have their merits, and I'm here to help you navigate the waters.

Turn Key Financing: The Basics

Turn Key financing is a streamlined approach where the builder takes the responsibility of financing the entire construction project. This means that instead of the homeowner securing a loan to fund the build, the builder manages the financial aspects, from initial costs to completion.

For homeowners, this can simplify the construction process, offering a more hands-off experience, but it may come with certain financial implications, such as a higher down payment or potential variations in interest rates.

Pros:

  • Ease for the Homeowner: The builder handles the financing, which means less paperwork and fewer financial decisions for you.

  • Predictable Costs: Since the builder is financing the construction, they'll typically have a set price for the project, making it easier for you to budget.

Cons:

  • Higher Down Payment: Typically, with Turn Key financing, a down payment of around 20% of the construction cost is required.

  • Potentially Higher Costs: Builders might have higher interest rates for Turn Key financing since, to the bank, it appears as if they're building a spec home.

Construction Financing: The Nitty-Gritty

Construction Financing, often referred to as a construction loan, is a short-term loan secured by the homeowner to cover the costs of building a new home. Unlike traditional mortgages, these loans are designed specifically for construction projects, releasing funds in stages as construction milestones are reached. This means homeowners only pay interest on the amount drawn down at each phase. 

While this offers more control over the financing process and potentially lower initial down payments, it also requires the homeowner to be more involved, ensuring timely payments and managing the budget closely as construction progresses.

Pros:

  • Lower Down Payment: In today's market, we're seeing down payments as low as 10%.

  • Lower Interest Rates: Since you're going to occupy the home, you'll typically get a lower interest rate compared to Turn Key financing.

Cons:

  • More Responsibility: You'll be in charge of making monthly payments throughout the construction process.

  • Potential for Variable Costs: Depending on how the construction progresses, there might be unforeseen costs that could affect your budget.

Which One is Right for You?

Choosing between Turn Key and Construction Financing isn't a one-size-fits-all decision. It truly depends on your financial situation, your comfort level with managing the construction process, and your long-term goals.

For instance, if you're juggling a mortgage or other financial commitments, Turn Key might be more appealing since the builder handles the monthly payments. On the other hand, if you're looking for a bit more control and potentially lower costs, Construction Financing could be the way to go.

A Few Parting Thoughts

Remember, the goal is to find a financing option that aligns with your needs and ensures a smooth construction process. Whether you're leaning towards Turn Key or Construction Financing, it's essential to have open communication with your builder. Ask questions, understand the costs involved, and make sure you're comfortable with the decision you make.

For more insights and resources on home building, check out our main website, Sanctified Construction, or explore more articles on our Blessed to Build blog. And as always, don't forget to raise your standard. We're here to guide you every step of the way.


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TJ Vitense

Founder of Sanctified Homes and Construction & the Blessed to Build Foundation, TJ believes in raising the industry standards. With his company Strategic Real Estate Experts, he helped hundreds of families buy and sell homes. And, now manages new home construction as one of Wisconsin's best home builders.

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