July 11 2022

How Do Construction Loans Work, and What Are They?

Wondering how you can build your dream home? Let’s face it, not everyone wants to buy an existing house or consider just picking a stock building plan as customization. You want to choose absolutely everything that goes into your home, and we get that. It’s possible, but it’s more complicated than most think. Here’s what you need to know.

What is a Construction Mortgage?

Construction mortgages allow you to draw down on the full amount of the mortgage at decided-upon stages of the home construction. Construction mortgages are given on a progress advance basis.

But borrowing from a bank is like dating: while some lenders will give it up on the first date, most won’t, and you probably don’t want to do business with the ones that do.

How Do You Qualify?

Before deciding what doormat and wine you’re buying to celebrate with, make sure you’re aware of the qualification process. While your lender won’t have a completed house to use as collateral for your loan, your qualifying process will take a lot longer than usual.

Think about approaching a lender like creeping on your exes on social media. The more information you have, the better.

How Do You Make It Easier?

Owning the land outright or having considerable equity in the property will make the process much easier. In the lender’s eyes, you’ve already taken the first step, and they’ll have collateral if you fault on the loan. The type, location, and value of the land will greatly affect which lenders are interested.

Like hosting a party, you’ll favor the guest who brings the expensive steaks instead of the one who brings yesterday’s leftovers.

What You Need to Know

Although this process isn’t typically for first-time homebuyers, the outcomes are often worth it. Whether you’re looking for a building site, experienced builder, or house plans, contact a local real estate agent to get started now.

Tags: No tags

Comments are closed.