Financing a Home Construction Loan
Building a dream home from the ground up is a common goal for many people. However, with building a home comes the need to secure financing. When it comes to financing, the smoother the process is the better. So, what are the basics when you are thinking of getting a home construction loan?
Financing new home construction is typically more complicated than getting a conventional mortgage on an existing home for many homeowners like you. Not all lenders will offer you a home construction loan program. As such, some owner-builders use home equity lines or current home refinancing to help pay for the construction costs associated with building a new home.
Unfortunately, mortgage rates for home equity lines and home equity loans often make these second mortgages expensive. Additionally, these financing options seldom cover the complete cost of building a new home. Therefore, if you are thinking about building a home from the ground up, the following information may be vital to your success.
Types of Construction Loans and Terms
Securing a home construction loan, while more involved than a conventional mortgage, ensures that you have enough funding to cover building costs. Each lender offers different terms, interest rates, and loan programs for new home construction, although most construction loans fall into two categories:
1. All-in-one loans, also called rollover construction loans or construction-to-permanent loans, start with a construction loan to fund the build and then convert to a conventional mortgage upon completion of the home.
2. Construction-only loans, which only fund building the home and must be paid in full upon completion.
Qualifying for Construction Loans
When you get a loan to build a home, the lender does not have a complete home as collateral during construction, so qualifying for a loan can be more difficult. The lender will want details about the home’s size, the materials used and the contractors and subcontractors that do the work. The general contractor can pull all this information together.
On top of that, the lender needs to know that you can make your monthly loan payments during construction. If the lender thinks you cannot make your current rent or mortgage payments while your next house is being built, you will not qualify.
To qualify for a construction loan, you will submit many of the same documents and verifications as with a conventional mortgage:
- Verification of income and assets
- Credit history report
- Home appraisal
These documents are necessary for a home construction loan, just as these documents would be required for a conventional mortgage. The primary difference being that with a construction loan, you must submit home plans and other documentation for an estimated appraisal by the lender. Your chosen lender may also request a potential construction budget, complete with material lists and estimates from a builder or subcontractors.
Robins Financial Credit Union offers the following loans:
- Construction Loans - Finance up to 90% of appraised value at an adjustable 9-month rate. (Terms and conditions apply)
- Land Loans - 5-year fixed Balloon Mortgage options for land purchases. All of our Land Loans feature low down payments.
Use our free home-buying calculator to determine a payment you can afford, or apply for a mortgage loan today with our online application. Our mortgage checklist will ensure you have everything you need to start the application process.
Home construction loans by Robins Financial Credit Union help you go from an empty lot…into your dream home.