Are you in the market for a new home? One of the decisions you will make is how to finance it. There are different options, and it can be challenging to decide which is right for you.
This blog will discuss ten questions that you should ask yourself before applying for ground-up construction financing for your new home. By answering the questions, you will be able to make an informed decision that fits your needs and budget.
1) What Kind Of Financing Are You Eligible For?
When considering construction financing for your home, you should first ask what financing you are eligible for. Many construction loans are available, so it’s essential to know which one is right for you and your situation.
Some lenders offer construction-to-permanent loans, which means that you only have to take out one loan for the entire process. Other lenders offer two separate loans – a construction loan and a separate mortgage loan – which can be expensive in the long run.
2) How Much Do You Need As A Down Payment?
The down payment is the obstacle for most home buyers, and it’s tough to save for a down payment on a new construction home.
Depending on the lender, you may need as little as five percent down or even less if you’re a first-time homebuyer or a veteran. Some lenders also offer construction loans that allow you to finance your down payment throughout the construction project.
If you have a lot of equity in your current home, you may be able to choose a home equity loan or line of credit for your down payment.
Private lenders typically require a higher down payment than banks. The amount can vary depending on the lender, but you should expect to need at least 20 percent of the total loan amount upfront.
You may be able to finance your down payment through the construction process if you go with a private lender, but this will likely result in a higher overall interest rate.
3) How Much Time Will It Take To Approve And Process The Construction Loan?
It can take 30 to 45 days to get approved for a construction loan, and the process is often longer if you’re self-employed or have a complicated financial history.
The good part is that the construction loan process is relatively quick once you’re approved. Once your builder breaks ground, they’ll usually request draws (or disbursements of funds) from the lender to pay for each stage of construction.
So, if you’re building a home and need financing, make sure to start the process early to move into the home as soon as possible.
With private lenders, the process is faster because the guidelines are more flexible.
4) Why Should You Consider Private Lenders?
If you’re looking for construction loans in Houston, Texas, you may want to consider a private lender. Unfortunately, the same regulations as banks do not bind private lenders so that they can offer more flexible financing options.
It includes loans with shorter terms, lower interest rates, and even loans that allow you to finance your down payment throughout the construction process.
You should compare the rates and terms from multiple lenders before choosing one, but a private lender can offer you more favorable financing than a bank.
5) Is the Lender Licensed and Insured?
When considering ground-up construction financing, it’s essential to ensure the lender is licensed and insured. In addition, it protects you in case anything goes wrong during the process.
It also shows that the lender is reputable and can be trusted with your personal information.
You can check with your state’s banking commission or department of insurance to confirm that the lender is licensed and insured.
You can also ask the lender for proof of insurance. If you’re working with a mortgage broker, they should be able to provide you with this information as well.
6) What are the Eligibility Criteria?
Each lender has different eligibility criteria for their loans. So it’s important to know what these are before you apply.
Some common ones include:
-Minimum credit score
-Minimum down payment
It’s vital to note that even if you don’t meet the criteria for one lender, you may be eligible for a loan from another. So, it’s worth comparing rates and conditions from different lenders to determine who offers the best rate and terms.
The construction financing process can be daunting, but by asking the right questions and being prepared with the answers, you can put yourself in a solid position to get the financing you need.