How to Secure a New Home Construction Loan
Getting approved for a loan to build a home can be just as hard as securing a loan to put down a payment on a new home. However, the benefit of building your own home has a lot more positive benefits, like customization, personalization and it might even be less costly than moving into a pre-built or previously owned home. It is the dream of many people to own their home and building it himself or herself can give an entirely unique sense of pride to the homeowner. Yet, securing a loan takes some fiscal creativity and finesse with your banker. Here are some ways to secure a new home construction loan.
Your first stop is probably going to be your mortgage lender, because you have probably already established a professional relationship. They will need to look at a lot of financial documents, like credit checks, pay stubs, bank statements and more, just to make sure you aren’t a risk and might default on the loan. This is also the best way to secure the biggest loan and one that will accommodate your entire budget, so that you aren’t coming out of pocket right away to build your own home.
Next, depending on the size of the loan, you must readjust your budget and find a construction team or contractor to take on the job according to how much money you actually have to build the home. When you are applying for a loan, your lender might want to do their own due diligence on the construction team or company to make sure they don’t have any history of fraud or malpractice. One of the biggest ways to lose a lot of money is by hiring a construction crew that is not reputable.
You also want to make sure that all budgets are signed and approved by you, your lender and your construction company. By keeping verbal agreements open, all parties are liable to lose money and you could end up in a relentless court battle. So make sure that all documents are signed with witnesses, make sure multiple copies are made, and then getting everything approved by lawyers.
As a the person applying for the loan, you want to make sure that the lender doesn’t make any agreements with the construction crew or contractor you don’t agree with. The lender might find a sneaky way of saving themselves money by telling the construction to cut corners or to cut costs wherever they can. You want to make sure you are in all loops of conversation between the bank and construction crews.
Lastly, once the lender has approved your loan, it is important to keep a watchful eye on the construction process. Even though it is a loan, you could still lose a lot of money if the construction crew doesn’t do their job. For instance, what if you are building the house to put on the market for renters? The sooner you can get someone to move in to pay monthly rent, the sooner you can make money and pay back your loan. You don’t want to have to rely on other loans, like payday loans, just to pay back your new home construction loan.