Building your own home can be an exciting process. Most people however do not have the money to pay for a home construction up front and banks don’t like to give mortgages on homes that don’t even exist yet. The solution that most people turn to in order to finance a home build is a construction loan.
What is a Construction Loan?
A construction loan is a short term (usually 1 year) loan that is used to finance the building of a new home. Once the term of the loan is up, you will usually need another loan to pay off the construction loan. For most people who are building a house, the loan used to pay off the construction loan is a mortgage.
How do you Qualify for a Construction Loan?
Since most lenders consider construction loans to be riskier than conventional mortgages, they will require a lot of information. Generally lenders will ask for confirmation that a qualified builder is involved and they will also want to see detailed specifications such as floor plans. They will also want to have a professional appraiser estimate what the home will be worth once it is complete. Finally, if you want to qualify for a construction loan, you will usually need a larger down payment than you would for a regular mortgage – at least 20% and sometimes more.
How Construction Loans Work
In order to protect themselves, lenders do not simply give all the money to the builder at once. Instead the money is paid out in a series of payments called draws which the builder can take at set intervals to fund the construction.
Where Can I Get a Construction Loan?
If you walk into your bank today, there is a good chance that you will be able to get a construction loan, however you may not get the best rate in doing so.
Just like when you apply for a mortgage, it pays to shop around. A qualified mortgage broker can compare the rates and terms of dozens of different lenders to help ensure that you get the best deal for you. Furthermore, a mortgage broker can help you apply for the mortgage that you will need to pay off your construction loan once your new home is built.
If you are interested in building a home and are looking for financing, contact us today. A member of our team will be happy to help you get the construction loan that you are looking for.
When we say YES! We stand behind our promise.®™