Building your own home is a dream that many people have. When you have your own home built from scratch, it gives you an ultimate level of control over the design and functionality. While there are plenty of advantages that come with building your own home, getting the financing you need can be more challenging. The process of getting a construction loan can be more difficult than getting a traditional mortgage. However, there are five tips that you can follow that can help you to get the construction loan that you need to build the home of your dreams.
Know the Basic Requirements
When you are going to get a construction loan, it is important that you know the basic requirements for approval. Any construction loan provider will check your credit score, income and down payment. Compared to other types of mortgages, it is expected that your scores and down payment will be higher. Normally, you will need to have at least an above average credit score, an income that could comfortably afford the monthly payment, and at least twenty percent down to put towards the total costs of the project.
Partner with Right People
When you do decide to build your own property, it is important that you partner with the right people along the way. This will include working with a contractor and architect that are experienced and used to dealing with lenders. Most of the time, your construction loan provider will be able to give you a list of contractors or lenders that they have worked with in the past. This will ensure that the contractors and architects are aware of the lender expectations, which will be necessary when it comes time to have your plans approved and funded.
Get a Full Budget Approved
With the help of your contractor and architect, you will need to develop a construction budget. This budget will then be reviewed by your lender to ensure that it is sufficient from their perspective as well. The budget will then act as a guide for how much money is available to be drawn and what it can be spent on during the course of the project until completion.
Be Prepared for Inspections
Even after the loan is approved and the first draw is funded, the bank will continue to want to monitor the progress of your home. IN many cases, they will partner with appraisers and engineers to inspect your property during the construction process. During an inspection, one of the professionals will come out to your home and check to make sure that all of the work that is supposed to have been completed has been done. This may be required multiple times during the construction process as you and your contractor work with the bank to have a draw approved.
Have Additional Funds Waiting
As you are working with the contractor and lender to build out your construction budget, you will find there are some contingencies built in that will go to cover cost overruns in other areas of the budget. While these are often enough to cover the entire project, there are situations when costs exceed even the contingency. In most cases, you will not be able to easily qualify for more debt from the bank. Due to this, you need to make sure that you have the liquidity available to fund the project until completion. Many lenders will also require that you have a certain level of financial reserves set aside.
Ultimately, when you are looking for a new property, building your own could be a great option. To do this, you likely will need to take out a construction loan from the bank. There are five tips that should be followed that could help you make this process easier so you have money you need to construct your dream home.