If you’re looking to construct your own home, you may need a construction loan in order to afford it. When it comes to qualifying for a construction loan, you are going to find that it is not as simple as qualifying for other types of loans. Construction loans operate by a very different set of rules, so the process is more daunting than a normal home loan.
One major difference is that the loan is not spread out over 15 or 30 years. So, you are really under the gun to pay up the moment the certificate of occupancy is issued by local government officials. However, if you have personal or investor funding to use to pay back such a loan at the required time, then a construction loan is not as big of a problem to utilize than you may imagine. In fact, it may be the right kind of loan for your purposes.
The following are some tips to consider when qualifying for this type of loan.
Get Your Credit in Order
As with other loans that take your credit score into account, a construction loan will depend on this factor as well. This means you will need to scrutinize your three major credit reports and begin scrubbing these reports clean. You want to get rid of as many credit blemishes as possible, so the sooner you get started on this the better.
Related Article: How To Read And Receive Your Credit Report Free
Work with the Right Lending Institution
If you think you can qualify for and receive a construction loan from any lending institution, you will be sadly mistaken if you try. It is important to only work with lending institutions that actually deal with making construction loans. A lot of lending institutions neither have the interest nor the funding to concern themselves with construction loans. You will want to find this out first before trying to work with any lending institution.
Even if you’re a contractor by profession with an EWP license, to avoid potential issues, it’s best not to
name yourself as the general contractor of the construction project. You can still work on the house if
you wish, but being the contractor of the record can cause pitfalls. This also applies to home appraising.
Even if you’re a professional appraiser, hire someone else to assess your personal construction project
for the highest chance on getting your loan approved.
After the completion of your construction project, your loan liability will roll over into a mortgage. Some
lenders combine mortgage loans and construction loans into a single 30-year loan, called “construction-
to-permanent” financing. This might be easier if you already own the land you’re constructing on, since
you can use this as equity.
You have probably had a home construction project in the works for some time. But, obtaining a home
construction loan will prove to be a beast of a different nature. From the payment schedule to payment
dispersals at scheduled times, the lending institution will have a lot of say in what goes on with this type
of loan, and they may exercise liberties that are not to your liking. Be sure you know all the terms and
conditions before you agree to move forward with a construction loan.
Are you ready to finally take control of your finances? Let my budgeting spreadsheets help!
Just fill out the form below and I'll send you the link to get the same exact budgeting spreadsheets that I use each month!
Included in the workbook:
- Monthly budget form
- Breakdown of savings form (for your sinking funds)
- Overview of your financial plan
I've been using these same forms since August 2011 and have grown my family's net worth 500% tracking our money using these forms!
Latest posts by Dixie Somers (see all)
- 5 Ways to Stay Worry-Free After Filing Bankruptcy - May 21, 2018
- Tips for Qualifying for a Construction Loan - April 6, 2018
- 5 Simple Ways to Save Money on Clothing - January 15, 2018
- Know How Much Your Car Is Worth – Do A Vehicle Appraisal - October 16, 2017