Home Construction Loans
Constructing your own home to the exact specifications of your dream house legitimately sounds like a fairytale, doesn’t it? It doesn’t have to be a figment of your imagination; you can actually make it happen. You can make all of it happen by taking a home construction loan and using that loan to completely fund your dream project. It is a short-term, interim loan which you should utilize to pay for the construction work, the raw materials, etc. As the construction gets completed, the lender (a bank in most cases) pays the money in stages.
The term of construction loans are typically short term; sometimes as short as a year, and these loans have interest rates as well. To gain the approval of the loan the lender typically asks for a construction timetable, plans which are incredibly intricate and a realistic budget, laid out so that the construction can go on without any hiccups. Once the loan is approved, the borrower is typically put on a bank draft; the bank will keep an eye on the stages of completion of the project. The borrower needs to only make some interest payments during the construction; they can start paying back the loan after the construction is complete.
The construction loan typically covers all the costs of materials and labor, which is used to build a new home. Some items can be financed without the use of a loan, like, permits, roof and home framing expenses, interior designing costs, etc. In order to get a home loan, you need to qualify for it and qualifying for it is more difficult than one might think. For a traditional mortgage, the house acts as collateral. If one does not make proper payments, the bank will surely seize the house. When it comes to a home construction loan, you can’t give a house that doesn’t exist as collateral, so these loans are viewed as a big risk, as opposed to online christmas loans. Home construction loan lenders tend to have some stringent requirements that a borrower needs to meet, to offset the risks that a lender may face. A borrower needs to have a great to excellent credit, a proper and stable income, has to pay a down payment of at least 20% and must also have a low debt to income ratio, to qualify.
Building a proper house often comes with a plethora of challenges and unexpected surprises, even some extra costs. You will always have to have proof of any of these unforeseen instances, because the bank will definitely ask for proof. You will also need to show the bank that you have enough savings to handle any kinds of situations.