All You Need to Know About Home Construction Loan – Process & How to Qualify?
Building your own house can turn out to be a wonderful and fun experience – but to many it can be a long and expensive process. Many of us do not want to pay for the home construction cost upfront. For them getting a mortgage can also turn to be tricky. It is like you are asking a bank or a mortgage lender to give you money for the home that doesn’t exist.
However, you are not eligible to go for a standard mortgage loan – but are eligible for a special type of loan that is known as the construction loan.
A construction loan is a short-term loan used to pay for the construction of a home. It is usually offered to allow you to build your home.
Qualifying for a Construction Loan
Banks and mortgage lenders are often suspicious of the construction loans for many reasons. One major issue is that you need to place a lot of trust in the builder.
To protect themselves from any problematic outcome, banks often impose strict qualifying requirements for a construction loan. That includes the following provisions:
- Involvement of a qualified builder: A qualified builder is a licensed general contractor means that you may have an especially hard time to look for an institution to finance your project.
- Lender needs to have detailed specifications. It includes floor plans, as well as details about the materials that are used in the home. Builders put together a comprehensive list of all details that include everything from ceiling heights to the type of home insulation used.
- Home value must be estimated by an appraiser. It may sound difficult to appraise something that doesn’t actually exist, the lender must convince an appraiser about the blue book and specs of the house, as well as the value of the land where the home is being built on.
- You need to put down a large down payment. Typically, you need to put down a minimum of 20% for a construction loan even some lenders may need as much as 25% down. This protects the bank or lender in case the house doesn’t turn out to be worth as per the expectations.
At the end of the construction process, once the house is constructed, you will need to get a new loan to pay off the construction loan – this is sometimes called the “end loan.”
However, after reading this blog you must be clear with the fact How to Finance New Home Construction?
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