About Construction Loans For Building A Home

If you want to build your own home, then you are going to need to secure a different type of loan than you would secure if you were going to be purchasing an existing home. This article will be helpful when it comes to better educating yourself on construction loans, so you have a clear picture of what they are and what you need to do in order for you to secure one and have your home built.

Obtaining a construction loan is different than a home loan

When it comes to getting approved for a construction loan, you will find the process to be more complex than it would be with a mortgage loan. When you get a loan for a house, the lender knows they have the protection of being able to take the house if you default. With construction loans, they don't have this ability, so they will be stricter and more cautious. However, if you are in a good position for this type of loan, then this won't bother you.

There are requirements you must meet for a construction loan

In order for you to be considered for a construction loan, you must use the money for the construction of that home and nothing else. In fact, with this type of loan, the money will be doled out as the work is completed and as more money is needed in order for the job to progress.

To be approved for a construction loan you are going to need to show the lender that you have a very good to excellent credit score. You will also need to prove you have a stable income and have no recent changes in your employment. The lender will also look at your finances to see that your debt to income ratio is low enough that you will realistically be able to take on the loan and make your payments regularly. You will also need to have a down payment to put forth. The lender will also want to verify you have money to cover common issues that may arise and weren't accounted for in the amount of the loan.

When it comes to the site the loan is for, the lender is also going to want to see some things. They want to have detailed information on the land, as well as the information on the location and the square footage of the house you are going to be building. For example, they may want to see your timeline and a detailed account of your budgeting and planning.

Be prepared to provide the lender with information on the builder you plan on using. Also, provide them with any information you have on the land that can prove helpful in being approved. For example, show proof the land has been leveled already or that the land has been deemed to not be in a flood zone.

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