It is best to use a builder that is recommended by your friends and family. Do not hold anything back as that will only delay the loan approval process.įollowing are the steps that one can follow to apply for a construction loan.īefore you apply for a construction loan, you need to first find a builder for your home. The more detail the borrowers provide, the better. Lenders want to see as many details as possible about the construction plan, including the budget, timeline, certificate, architecture, design blueprints of the house, and draw schedules of the loan. Lenders want to make sure the borrower is not in too much debt which will impact his ability to repay the construction loan. Having a low debt-to-income ratio will increase the borrower's chance of getting approved for a construction loan. Although some lenders will still approve borrowers with a lower down payment, interest rates for these lenders might be higher. Borrowers are required to show documents to prove their income, employment history, and assets.īorrowers should be prepared to have at least a 20% down payment saved up. Lenders will do an income check to see if the borrower is financially strong to repay the loan. Some lenders will have lower requirements on credit scores, but their interest rates are usually much higher to offset the additional risks. They want to see the borrower is responsible for their bills and has good credit. Most lenders require a credit score of 700 or above to qualify for a construction loan. In addition, lenders will need to see the architectural plans, the builder's certificate, and license, and the construction timeline and budget. To qualify for a construction loan, lenders are going to look at the borrower's income, credit score, debt-to-income ratio, and down payment amount. Therefore, the interest rate for construction loans is higher. It could be a construction-only or a construction-to-permanent loan.Ĭonstruction loans are harder to get than traditional mortgages because they carry considerably more risks for lenders as there is no house to use as collateral.
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