If you are thinking of constructing a new home or doing significant renovations to your existing home, a construction loan may be the right option for you.
Construction loans allow the borrower to finance and build their dream home instead of purchasing a home that is designed by someone else. Funding can be used to purchase land to construct a new residence or purchase an existing home with a plan to renovate or expand it.
Financing for these loans is not unlike a conventional mortgage. Many of the same factors are evaluated in underwriting such as credit scores, debt ratios (personal debt compared to income earned), and the value of the existing home and/or land the home is to be constructed on. Lenders do consider these loans to be a higher risk, as the collateral for a construction loan is obviously not a finished home like some may purchase. For this reason, the interest rate and closing costs on these loans are sometimes higher than conventional 15 or 30-year fixed mortgage loans. However, this rate is typically only paid during the actual construction project, after which the loan is refinanced to a traditional 15 or 30-year loan.
Good construction lenders can assist in navigating the waters on construction financing, as many borrowers have never accessed funding of this kind before. We work with a number of builders in the area, so we can help with referrals and vetting potential builders. Also, we can assist in managing the construction draw and inspection process that can be overwhelming for borrowers that have no experience with construction projects. Because of our experience, we can also help set expectations around what to expect and what to ask when interviewing builders and construction service providers.
If you’re interested in learning more about Construction Loans for your next project, give us a call today. Or, if you’re ready to build, apply for your loan today.