Everything You Need To Know About New Home Construction Loans

Do you find it hard to arrange for all the cash needed to begin your dream home construction project? Well, no need to worry. Just approach your local on-your-lot builder and discuss the financing options available. As long as you meet the eligibility criteria and intend to pay back the money, there’s no reason why you wouldn’t qualify for a construction loan. Think of it as getting a mortgage to buy a pre-made home – only in this case, the money will contribute to your construction expenses.

Find Out Which Construction Loan Fits Your Needs

Now, construction loans are varied and diverse, and you need to decide which one fulfills your home building requirements. For example, a lot of it hinges on your down payment amount and your current credit score. The lender will consider your household income along with your capacity to make payments on a monthly basis. So, prepare to field questions on your existing assets and debts, if any. Filling out pages and pages of paperwork is quite overwhelming for a newbie who’s never built a home before or opted for financing. The terms of the loan as well as the categories may seem complicated if you’re not privy to all the information. Thankfully, the content below can help you navigate the financing process:

1. Conventional Loan

Contact your on-your-lot builder to secure a new construction loan. Some provide in-house financing options while others have tie-ups with local lenders. Now, you might wonder – wouldn’t it just be easier to approach a bank? Well, the truth is, banks are not always willing to provide home building loans due to the higher risk involved.

Moreover, if you secure financing from a bank, they will be in charge of deciding the home builder. On the other hand, approaching the builder for a loan saves both money and time. Moreover, you benefit from more competitive rates and a faster approval process.

2. Stand-Alone Construction Loan

If you’ve already bought a lot, but lack the monetary resources to proceed with the construction phase, then a stand-alone construction loan is a perfect choice. Keep in mind that this financing will cover only the construction part of the process. So, you will have to use up the entire fund to meet the construction expenses and not for any other purpose. If you need more cash for meeting other expenses such as moving cost, you should rather arrange for permanent financing.

3. Construction-to-Permanent Loan

When you apply for a construction-to-permanent loan, you receive construction money from the lender on the basis of the contractor’s requests. And once the construction process is completed and the home passes lender inspection, the permanent loan comes into effect. The loan automatically rolls over, which means you’re not required to pay additional closing and other fees. But you will have to pay separate terms. The interest on the permanent loan is the same as what was decided at the beginning of the process and closed on the permanent or construction loan.

Take advantage of the booming real estate market and approach your local on-your-lot builders to secure financing for your new house. This is too good an opportunity to pass up, so if you lack the funds to build your dream home, now’s the perfect time to get the ball rolling on a suitable construction loan.

Alex Smith is a second generation realtor who combines his love for the industry with his passion for writing.