The idea of building a home can be thrilling for any person. Many people prefer to buy what has already been built, but building your own house has many benefits like the inclusion of custom designs and other preferences. This requires land that you have already purchased.
Before having your own house built, it is important to secure the necessary funds. A mortgage is one way to obtain the funds, but there is a lot that you need to learn about this type of loan. Here are some insights for you.
It Is Not Just Any Other Loan
Unlike in the case of purchasing an existing home, building loans are slightly different. A standard mortgage could be recommended if one is buying an existing home. With a standard mortgage, the lender will just look at your credit history, current credit score and whether or not you have a job. If you meet these qualifications, your loan will be approved with ease.
But what happens when you need to get a loan to construct a house from scratch? The lenders view this as financing something that is not there already. They also consider construction as a risk many are not willing to take. However, if you are determined, it is possible to strike a deal with the lenders.
Looking for the Appropriate Lender
Since not all financial institutions are ready for this kind of arrangement, it is time to look for the appropriate lender with more specialized loans. Specifically, you will be looking for a construction loan, house-building financing or any other similar arrangement.
One thing to bear in mind though is that these loans have different repayment plans and higher rates than most other loans. Lenders claim that this accounts for the additional risk they are accepting. They may decide to provide funds in phases or at the beginning of the construction.
How to Qualify for a Home Construction Mortgage
The qualifications vary depending on individual lenders. Each establishes them depending on how they assess the risk when venturing into such an arrangement. However, you are likely to be subjected to these considerations when seeking such a loan.
· Credit score – unlike with an ordinary loan, your credit score should be very high to qualify. If you have damaged it in the recent past, it is time to visit Boostcredit101 and get tips on how to raise it quickly. They also have experts who can be consulted for this.
· A reliable source of income – when thinking of getting such a loan, you must have a reliable source of income. Most lenders prefer employment by government agencies, well-established businesses or a thriving business that has been in operation for a couple of years.
· A healthy bank statement – a sufficient flow of finances in a bank account is a requirement when seeking a home construction loan. The main reason for this is to show the lender that you have been managing your finances well. They may also examine large bills to learn if they jeopardize your ability to make the mortgage payments.
Preparing a Down Payment
Unfortunately, you cannot borrow the down payment. The lender wants you to show commitment before they start financing the project. The maximum down payment most people pay is about 25 percent of the total cost. The lender will finance the remainder, and then you will start the repayment installments later or as agreed.
The main reason to ask for a down payment is to avoid bearing all the risk alone. Most of the lenders consider this project to be high risk. According to research, most financial institutions claim that the stringent measures they have set are meant to increase their chances of being in a healthy business.
If the loan is approved, the lender expects you to have land that is ready. Therefore, it is prudent to have bought the land already before submitting any applications. Another main reason people choose home construction loans is to utilize the land they already have or get a preferred location.
There should be ample land to build the house that you desire or else the lender will cancel the mortgage. Consider the safety of the location so that you do not go through this sensitive process only to leave the house instead of living in it.
Choose a Reliable Builder
The last important thing you need to know is that the lender will ask about the builder you intend to use. Make sure that you have chosen one who is qualified and has enough experience. If they have a good reputation, then the lender will have no concerns.
Now that you know these highlights, the decision whether or not to choose these loans lies with you. You have to weigh the benefits against the challenges of obtaining one. Then, make the right decision. It is a worthy option to consider.