Are you thinking of getting a construction loan but do not know how? It may be a tedious process but it is not as impossible as you may think it is. As long as you submit the necessary requirements for a construction loan then you are good to go.
What is a construction loan?
If you are looking to build or to repair a house and you don’t have enough cash on hand, a construction loan application will be the answer to your problems. These are loans that may have a higher loan rate and the terms are shorter. To make sure that the money goes to the intended purpose, the lender gives the approved loan directly to your contractor. The money can be given in increments of three or until the building is finished.
Another positive note on applying for a construction loan is that it can cover a lot of your payment needs from the land, fees and permits, labor and material costs, and even a buffer fund in case the total cost of the construction goes beyond the initial estimate.
How to get a construction loan
Treat a construction loan application just as you would any other loans for there will be the usual credit investigation. Before your loan is approved, the lender will look at your debt-to-income ratio. Usually, for a positive approval of your loan, your debts must not be more than 45%. They will also usually require you to cover 20% – 30% of the construction but it can be less depending on the lender. Your credit score must be around 680 as well, the higher the better.
What are the requirements for a construction loan
The requirements for taking out a construction loan are usually across the board. Just like any lender who knows his business, you will be asked about your repayment plan. How can you prove that you can repay them of your debt? You also need to talk to a qualified builder as lenders will meticulously go through the architectural plans. Make sure that there is a complete list of materials that will be used and who the suppliers may be. Floor plans, projection, and estimates of costs are important as well.
Get your requirements prepared and be on your way to applying for your construction loan.