You decided to finally have that dream house that you longed for. You took care of the requisites needed – good credit score, zero outstanding bills due, more than ample amount of money in the bank, reliable lender, dependable mortgage advisor – so that your move to realize your property will proceed without any hitches.
You took the initiative to be personally involved with its erection since you want to have complete control over its build – from breaking ground to applying final touches before moving in.
You were just about to ink your commitment with your lender when you were informed that only a portion of the total amount will be initially given. Upon inquiry, you learned that your loan is not the same as that of an ordinary mortgage loan.
Instead, the loan you applied for is a construction loan whose total amount is “amortized” or disbursed in staggered portions depending on the “stage” or “phase” of your house construct.
In this blog, we will discuss what a construction loan is and its requirements to help you with your house build project.
Construction Loan Requirements Defined
Let us review what a construction loan is:
"A construction loan is a short-term loan given to a borrower to facilitate the financing of the erection or building of a house or any real estate property project(s).”
Construction loans are considered high-risk loans because they command higher interest rates compared to conventional mortgage loan packages.
Construction Loan Requisites
We can now proceed to our main topic having been re-introduced to you what a construction loan is. If you are asking yourself, “How does a construction loan work for a new home ?” (Or, better yet, “How will a construction loan help me with my house build project?”), then don’t worry.
The following are the requirements you need to familiarize yourself with your house build loan:
a. Credit Mark and Income Base – you have to make sure that your credit score and outstanding obligations are in check. Consider also holding a stable job and, as much as possible, avoid changing professions when planning to apply for a construction loan.
We suggest that you remain for at least 3 to 6 months with your current employer before your application so that your lender(s) will not consider you a high-risk borrower.
b. Down Payment – you are expected to pay a down payment of at least 20% to 25% of your construction build project. Make certain that you are liquid enough to cover this amount and other costs thereafter.
c. Blueprint of Your House Build Project – it is mandatory that you provide your lenders a blueprint of your construction plan. Lenders will be demanding this since they will use this as their basis for the amount that will be extended to you. You are also giving them the impression that you are serious in your move to lead the construction of your dream house.
d. Professional Contractor and/or Builder to Work on Your House Build – this is the most important of the five requirements by far. You have to certify that your contractor is licensed, reputable, and has a portfolio of excellent project builds. Your house’s future, as well as your family’s, depends highly on your contractor’s or builder’s overall output.
e. Acquire an Appraisal Amount for Your Project Build – this is the most important requirement not to be missed out by you since this will be the basis of your lender in computing and determining the overall total money you need and in ascertaining the necessary amount of funds to distribute based on your house construct progress.
These are the “foundations” of your construction loan that need to be fulfilled before the commencing of your house construction. Failure on your part to satisfy these will result in the delay of your mortgage for custom-built home approval.
See to it that you clearly understand the aforementioned five conditions and make sure you accomplish them properly and diligently.
Applying for a construction loan is a risky route to take most especially if you are a first-time home builder loan aspirant. You are left on your own with no one else to turn to and are susceptible to costly errors in judgment.
You are likewise making yourself vulnerable to scammers and loan sharks who will not waste time in taking your money and ruining your chances to build your own house.
Heed our list and be on the lookout for a reputable construction mortgage loan professional who will guide you throughout your journey in realizing your dream house.
A construction loan is different from any of your commonly-known traditional mortgage loan agreements. You need to satisfy some requirements before getting your loan approved.
With proper guidance from a reputable construction loan mortgage advisor, you can be assured of a well-prepared mindset to help you sort out problems and pitfalls that may hinder your house build progress.
Never fall prey to offers from dubious individuals that appear too good to be true. Better do your research initially before applying for a construction loan and vet your chosen construction mortgage loan provider before committing with him/her.
We are a trusted financial company that has helped 96 clients materialize their dream homes in Canada. Our vision is to help families build, develop, and/or improve their homes for them to live conveniently and comfortably.
Call 416-825-0142 or email email@example.com today to learn more.