How to get a Home Construction Loan
Finding your dream home can take time to find where to begin! Many home buyers find houses that meet some of their needs but not all. That means you could buy a home that makes you happy. The average American home costs about $400,000, that’s a lot of money to spend on something you don’t love.
You can build your own if you don’t want to settle for less. This allows you to design a home tailored to your wants and desires. Plus, there are no concerns about a home that was lived in by someone else. First, you need to get a construction loan to finance your new home.
A construction loan is a short-term financing option that covers the costs of building a new home. A construction loan differs from a mortgage and is a specialty financing type. After the home is finished, you need to take out a mortgage to pay for it.
There are several forms of construction loans to review before making a decision:
This is a short-term construction loan that lasts about a year. It only covers the construction costs. Many large lenders do not offer construction-only loans because of the higher risk. They can be harder to qualify for, and the rate will be higher. If you choose a construction-only loan, you will have to pay more loan fees when applying for a mortgage.
This loan pays construction costs and switches to a regular mortgage when the job is complete. You only make interest payments during the construction phase.
These loans are usually more expensive than mortgages. So, if you choose this option, check several lenders before making a decision. You could find a lender that offers better terms than another.
This is an FHA 203k loan that can be used to renovate your home. It is insured by FHA and lets you buy and rehab your home with one monthly payment. You also can qualify for this type of loan through Fannie Mae and Freddie Mac lenders.
Some home builders want to be their own contractor and some lenders offer owner-builder loans. These loans require you to show skill and expertise in homebuilding.
This is a regular mortgage loan that you can get after the home is built. You can get an end loan if the construction is complete.
Now that you know the types of construction loans, you will know what to look for when talking to your home lender.