If you are even considering building a home, you need to learn how to get construction loan financing. With the proper preparation, getting a home loan can be amazingly easy. Without the right preparation it can be impossible. Here are some great tips for obtaining the best loan.
How to Get Construction Loan Financing Step One: Financial Preparation to Pre-Qualify
When you ask any real estate agent, loan officer, home builder or contractor to help you get a home construction loan, they will use the pre-qualifying process to determine what sort of home you can afford to build. They may even determine that you cannot afford to build a home at this time. This saves you the time, money and effort involved in attempting to borrow more money than the bank will allow you to. All of these people want you to succeed in getting a loan, but if you are unprepared, there is nothing they can do to help you until you are ready. Here are some preparations you can make before you ask a Realtor, loan officer or home builder to help you get a loan.
1. Clean up your credit score.
2. Be employed at your current place of work for more than one year.
3. Pay off all other monthly payments.
4. Pay your bills promptly.
5. One third of your income should be equal to or more than the payment you plan to make on your loan. Use a mortgage calculator to get some idea what you would qualify for.
6. Save enough for a down-payment. (A VA loan has no down-payment. An FHA Loan requires a 3.5% down-payment. All other loans require a 20% down-payment. There has been some discussion of requiring a standard 30% down-payment.)
How to Get Construction Loan Financing Step Two: Pre-Qualifying
Pre-qualifying is easy if you are prepared and honest. Just tell your home builder or contractor the whole truth. Bring your tax return with you, along with any other documentation you have of your financial situation. Don’t attempt to be misleading. There is no point in lying because while you may be able to deceive your home builder or contractor, the lending institution will be able to discover everything. If you are honest, your home builder and your loan agents will try their best to get you a loan. Knowing about any potential problems will help them find the right loan for your situation.
How to Get Construction Loan Financing Step Three: Choosing a Loan
It is possible to apply for more than one loan, and you will likely want to discuss your situation with several lending institutions. You will need a construction loan that can be converted to a mortgage loan, or else you can choose a roll-over loan which is a construction loan that becomes a mortgage once the house is complete. The main difference in the two is that with a roll over loan you can lock in your interest rates now. This is a much better choice in the current economy, because interest rates are at rock bottom.
A roll over loan is two loans in one which close at the same time. This saves money, time and worry. The construction loan is a loan based on your needs, your financial situation and “your story.” This is why construction loans are sometimes called story loans. Once a loan is tailored to your needs it will be time to discuss mortgage loans. There are many types of mortgage loan choices.
• Variable vs. Fixed Rate – Rates can go up or down on a variable rate, but a fixed rate remains static. In a time when rates are likely to go down, a variable rate makes sense. These are not the times for variable rates. Grab a fixed rate mortgage.
• 30 years or 15 years – The shorter the term of the loan, the less interest you pay. The difference can be over $100,000 on an average home. The interest rates are less on a 50 year loan, plus the time spent paying accruing interest is less. The payments are slightly higher, but the overall savings are huge. Loan officers and even builders tend to assume that you want a 30 year mortgage, but it is worth bringing up a 15 year mortgage.
• FHA or VA loans can be a great opportunities if you qualify.
How to Get Construction Loan Financing Step Four: Applying for the Loan
Applying for a loan can involve a lot of complex paperwork. Accept all the help you can get from your home builder or contractor, as well as your loan officer. Make sure you are absolutely truthful on all of your loan applications. Never give it an estimate or a guess. Always use the real numbers, and never fudge on anything. Using the real numbers is the only way you will ever get a loan.
These simple guidelines will get you through the entire loan process with ease. There is no reason to fear a loan application if you are prepared, and there is no need to fill one out if you are not. If you honestly pre-qualify, after giving all the details, you will have no problems obtaining a great loan. Knowing how to get construction loan financing makes the process very simple.