Interested in building the home of your dreams from the ground up? Here’s everything you need to know about applying for a home construction loan.
Building a home exactly the way you want it is incredibly satisfying, but where do you get started?
A home construction loan should be the first thing on your To-Do list after that choosing the builder whose commitment to excellence is highest.
This article will breakdown the importance of a construction loan and describe how to get one.
Home Construction Loan
First, let’s talk about what a home construction loan is.
It is a loan that you are taking from a bank or lender to provide money to build your home. In its simplest form, this is money you’re borrowing to pay the contractors to do the building work for you.
Typically a construction loan is for a short period of time, just long enough for the build process to be completed. The lender will require the money borrowed to be fully reimbursed at that time.
But don’t fret! If you haven’t got the money to pay off the home construction loan, you’ll simply apply for a mortgage to transfer the loan to a 30-year payoff.
You’re probably asking yourself, “But why would I get a construction loan instead of just a mortgage”?
Well, the answer is simple. Most construction loans do not require monthly payments as a mortgage would. The most you would pay is the interest on the loan, which would be considerably less than an actual mortgage payment.
This helps you during the building process to save up for other things, such as decor or extras for the house that is not included in your loan. It can also take some of the stress away from the building process as well.
How to Get a Construction Loan
There are several steps in getting a construction loan, but the first thing you should do is hire a contractor. Whether you’re going through a company to do the whole process for you, or you’re having them hire out subcontractors to do each job, you’ll need to have them hired before applying for the loan.
After you hire the contractor you’ll need to work out the blueprints of the build, including the estimated pricing. Once you get the contractor’s estimated pricing, you will need to have an appraisal done.
While it may not make a whole lot of sense to have an appraisal done on a home that doesn’t exist yet, the lender will want to make sure they are investing in something worth the money you’re asking for.
At this point, you’ll probably have to put down a considerable down-payment. Most lenders will require 20 – 25% down before giving approval of the home construction loan. If you need further assistance with this process, check out the Construction Loan Center.
After these steps, you will wait for the loan approval and then you’ll be free to get started on building your home!
Get Building!
We hope you’re confident in the home construction loan process now that you’ve read through our process. These loans are important when you’re wanting to build your own home and don’t have the full cost of the build saved up.
We hope you’ll look to us for advice across many different topics including finance, business, and technology.
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