New Construction Loans: What They Are and How to Qualify
Many people dream of being able to build their own home. It can be an experience that is wonderful even though the process can also be one that is both stressful and long. Most people cannot afford the expense up front and as such they will need to take out a loan to be able to get the job done. Getting a mortgage loan for this can be a bit tricky because you are essentially asking the lender to loan you money for a non-existent house. However, there is a loan that you can get for this type of project.
New Construction Loans Defined
A construction loan can be described as a short term loan that is used to pay the costs of constructing a house. This type of loan is typically for a set period of time – say a year – in order to give you the time that is needed to complete the construction. Once construction has been finished, you will have to get a different type of loan known as an end loan that will allow you to pay the construction loan in full.
What this means is that at the end of the construction loan term you will need to be refinanced with a more traditional mortgage loan.
How to Qualify for New Construction Loans
Mortgage lenders and banks are generally leery of this type of loan for a variety of reasons. One critical issue is that of trusting the builder. The lender will want to know that the money is actually being used to construct something that will have value once it has been completed. In order to protect themselves, lenders often have strict guidelines that must be met if you are trying to qualify for a construction loan.
If you can meet each of the requirements listed above and you have excellent credit then you might qualify for one of these new construction loans. You will also need to provide the lender with information about your income as well as where you currently reside.
New Construction Loans Defined
A construction loan can be described as a short term loan that is used to pay the costs of constructing a house. This type of loan is typically for a set period of time – say a year – in order to give you the time that is needed to complete the construction. Once construction has been finished, you will have to get a different type of loan known as an end loan that will allow you to pay the construction loan in full.
What this means is that at the end of the construction loan term you will need to be refinanced with a more traditional mortgage loan.
How to Qualify for New Construction Loans
Mortgage lenders and banks are generally leery of this type of loan for a variety of reasons. One critical issue is that of trusting the builder. The lender will want to know that the money is actually being used to construct something that will have value once it has been completed. In order to protect themselves, lenders often have strict guidelines that must be met if you are trying to qualify for a construction loan.
There must be the involvement of a qualified builder. This should be a general contractor that has been licensed and who has built a reputation by building homes of quality.
The lender will require detailed specifications. This can include all of the floor plans in addition to detailed information about each of the materials that will be used in the process of construction.
The value of the home has to be estimated by an official appraiser. While it can seem like an insurmountable task to get an appraisal on something that is not even in existence, the appraiser can give an appraisal based on the house plans and a list of the building materials that will be used. He will also be looking at the land that the house will be built on.
A large down payment will be necessary. In general, a down payment of 20% will be the minimum that will be required for new construction loans. That said, sometimes the lender will ask for a down payment of 25%.
If you can meet each of the requirements listed above and you have excellent credit then you might qualify for one of these new construction loans. You will also need to provide the lender with information about your income as well as where you currently reside.
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