Everyone has a dream home – some prefer one that is ready to move in, while some prefer to build one from the ground up. For those who choose to purchase a home that is already complete, the journey is in the house-hunt. For the ones who choose to build their own, the journey starts in laying a good foundation, and of course, having the funds to complete the house.
A home construction loan is often needed by those who wish to build their dream house. Also known as a self-build loan, this type of loan is used as a means to finance the construction of the home or any residential area. Considered to be high risk because they are only short-term, this loan is often accompanied by higher interest rates. A home construction loan usually goes for only a year, around the time that a house construction reaches completion.
Like any other loan, a home construction loan has its set of requirements, and below is a list of what is needed to secure one.
- A Construction Plan. Prepare a detailed plan of the entire home construction project, with specifications. Some lenders may not require one, but having it ready anytime can increase the chances of approval, especially if all information is complete. Work with an architect and engineer for the detailed floor plan and blueprints.
- A Financial Plan. Get the plans appraised to get the estimated amount that is needed for the home construction. This also gives a ballpark figure of the amount needed for the loan. Some lenders also have their own appraisals, and having both will give an idea of the home’s worth in the future.
- Credit Score. This one is a staple in all kinds of loans, so ensuring a good score increases the chances of approval. Because of the risk, plan out improving the credit score months ahead by avoiding large purchases and paying off debts.
- Engage the Services of a Builder. In order to be approved for a home construction loan, a licensed builder is required. Having the builder set a timeline for the project is also necessary for approval. Even the architect or engineer should be licensed and listed in the project, so choose the reliable and high-quality contractors needed for the home construction.
- Downpayment. Lenders require the borrowers to pay a 25-30% downpayment of the loan amount, so having enough finances ahead of time will make sure that the loan application process goes smoothly.
- Proof of Income. Lenders would need assurance that the borrower is able to pay off the loan. Having proof of income gives this guarantee that the borrower has more than sufficient means to pay off the loan within the appointed period. A debt-to-income ratio of 45% and below is a good number for home construction loans.
- A Good Lender. Choosing which one fits the borrower’s criteria and specifications take a lot of research and is part of the work in order to secure a home construction loan. Taking into consideration the company’s interest rates and fees will help the borrower choose the right lender.
Building a home is a lot of work, but seeing the home of your dreams before your eyes is fulfilling and will give you the motivation to complete the work. Visit blakemortgage.com for more information on home construction loans.
