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To receive a construction loan, you’ll need to qualify, just like with any other loan. That means you need good credit and favorable ratios ( debt-to-income and loan-to-value ). Consistent income also helps.
Since a construction loan, unlike a mortgage, "isn’t meant to be around for a long time," warn both Bankrate and Money Crashers, deadlines are serious business and you want to meet them.
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Unlike a conventional loan, however, it’s more complicated to get the green light on your construction loan application because you’re essentially requesting to borrow money for a new build that doesn’t exist yet. This post outlines some of the requirements you need in order to qualify for a construction loan.
To get a construction loan, start by deciding if you want a short-term construction-only loan, which offers a lower interest rate but only gives you a year before you have to repay the loan. Alternatively, consider a construction-to-permanent loan, which has a higher interest rate but gives you longer to complete your project and repay the loan.
A construction loan is likely to be useful to you if you are building a home yourself as general contractor or working with a custom builder. Most new home construction loans provide short-term funds designed to get you through the building stage of your project (six to 12 months) followed by a conversion into a permanent long-term loan of 30.
Commercial borrowers, on the whole, are highly leveraged and could struggle to make loan payments if their earnings take a hit. “It doesn’t mean anything is imminent, but investors don’t want. you.
You can use the land on which you plan to build your dream house as equity for a construction loan, but make sure the property is free of title issues and other possible encumbrances before contacting a lender for a construction loan. You’ll also need to be prepared to put down around 20 percent.
If you are ready to start building your new home from the ground up it is likely that a construction loan is what you will need – whether or not you already own your lot free and clear, you bought your lot with a land loan or you are buying your lot with the construction loan.
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