5 Important Things You Should Know About Construction Loans

We all dream of owning a home but not everyone has enough cash to make their dream come true. Mortgages can be a great help if you choose to buy a home. But what if you want to build the home of your dreams? In that case, a traditional mortgage won’t be an option for you. Fortunately, however, you can get a new construction loan to secure finances to fund your new home’s construction.

The new construction loans have quite a few benefits to offer and there are some challenges too. Here we have outlined 5 important things that you should know about these loans to help you decide if it’s worth it or not.

1. These Loans Are Interest-Only During The Construction Period

As the loan is not fully paid out until the completion of the new building construction, you are not required by the bank to start making the principal payments during the construction period. All you have to pay during this period is a lower, interest-only loan payment. As a result, you have a bit more time to add to your savings before you could start paying down the principal amount.

2. You Can Get Flexible Terms

Even though it is necessary for you to present the bank with some specific project plans, you get a lot of flexibility in the terms and conditions for new construction loans as compared to traditional loans. It is possible for you to work around the terms of your loans according to your project requirements to a certain extent.

3. There Is Extra Scrutiny But It’s For Your Own Good

Even though the extra scrutiny is not always welcoming, it can help you in the long run. As the building process goes on, it will help you make sure that your project remains on schedule and is completed within the designated budget.

4. You Must Have Construction Plans In Order For Approval

The lenders don't just approve the loan, but also the complete building plans for a new construction loan. So, it is important for you to get everything in place before you seek approval. You’ll have to provide your bank statements as well as other references, and your work history. Talking about the construction plans, the lenders are often interested in getting the project estimates, the exact specifications, the schedule, and a lot of other similar information before they could approve your loan.

5. It Is Always Challenging To Qualify For A New Construction Loan

Qualifying for construction loans is more difficult as compared to traditional mortgages. As you don’t have a constructed home that you could use as collateral, the lender generally assumes greater risk. So, the lenders want to get every single detail possible about the home being built from its size and location to the contractors and the materials they’ll be using. Besides, they want to get an assurance that you’ll be able to make your loan repayments every month – both during and after the construction phase. Generally, most traditional lenders have the following criteria for you to qualify for a construction loan.

Now, if you are considering your options to get new construction loans, get in touch with Blake Mortgage today!