How to Get a Construction Loan

Published by julia | Filed under Buyer / Seller Tips, Cities, Real Estate, Uncategorized

If you’re building a home, you’re going to need a construction loan. The construction loan is different from the mortgage. The construction loan is to pay the contractors to build your house. Once the house is built and the contractors are paid, then your loan will be converted into a regular home mortgage. But before you can move into your dream home, custom designed by you, you’ll need to get a construction loan. If you’ve never done it, here’s how.

First, you choose a lender that will work with you, and find out just how much you can qualify for in financing. Be sure to take down payments and closing costs into consideration. Next, choose a home design and hire a contractor and an architect to do the job. Get these two professionals to give you an estimate of how much it will cost to do the job, and be sure you know how many revisions your architect will allow you to make to the home design plans before chargine you additional money.

Once you’ve got everything all set up with the architect and contractor, go back to the lender and ask for the construction loan. You should already know that the estimated cost of the project will fit in with the financing figure the lender gave you previously. The lender will need to see the plans for the house before releasing any money to you. It will be easiest on you if you get a construction loan that can be automatically converted into a regular mortgage upon completion of the home. This way, you can keep the same lender, which saves a lot of paperwork. However, be aware that you may have to get a separate mortgage from another lender once construction in complete, depending on your individual circumstances.

Construction loans usually need a 10% downpayment (20% if you want to avoid having to get private mortgage insurance). You could also avoid having to get this insurance by piggybacking your loans. To do this, get a first mortgage for 75 to 80% and a second mortgage for the balance of the price of the construction of the home. Once you have the right construction loan and plans for your dream home drawn up and ready to go, it’s time to get started on building. Soon, you’ll be moving in to a great home at an excellent price. What could be better than that?