Building a new house can be a wonderful experience, but it can also be stressful when people build their houses themselves. If you know a lot of home construction and want to build your house yourself, you will need to apply for a construction loan. Before you apply for one, there are three things you should know.
What A Construction Loan Is
A construction loan is a short-term loan used to build a house. Most construction loans last up to one year, and this length of time is how long you have to build the house. A construction loan is very different from a home loan because the proceeds are not issued all at once. Instead, you can take draws from the loan as needed. Every lender has different policies relating to draws, and here are some of the popular options:
- You can take 10% of the loan at 10 different stages in the home-building process, and the lender tells you what these stages are.
- You can take any number of draws for any amounts at any time during the process.
- You are allowed to take up to a certain number of draws throughout the life of the loan.
When you take a draw, the money is deposited into your construction checking account. You must use this money to pay the bills for your house. Each time you take a draw, you may be required to submit receipts to the bank in exchange for the money. This is done simply for the lender to protect itself and to make sure you really are using the money to build a house.
As you take draws, you will have to pay monthly interest payments on the money. Because of this, it's important to try to wait to take your draws until you really need the money. If you take them too soon, you will pay more interest than necessary.
They Can Be Hard To Get Without A License
One thing you should know about construction loans is that they can be hard to obtain if you are not a licensed general contractor. Lenders have more risks when issuing construction loans to non-licensed contractors, and this is why they may require one. If you want to build the house yourself and are not a licensed contractor, the bank may deny your loan.
Although this is a typical requirement, it may still be possible for you to secure the loan without one. For example, if you have excellent credit and a good history with the lender, they may approve it without a general contractor involved. If they won't, you always could hire a contractor to assist you in the process of building your house. This contractor could help you through various stages; however, you could still manage most of the project yourself.
You Will Still Need A Final Loan
After getting a construction loan and building a house, you will still have one more step to complete. This final step involves converting the construction loan into a final home loan. When this happens, you will secure a home mortgage loan and its proceeds will be used to pay off the entire construction loan. At that point, you will no longer have the construction loan; you will only have the new home loan.
One thing to keep in mind is that you must try to keep your credit good during the time you are building your house. If your credit changes for the worse, you may have trouble getting a final home loan. This situation could also leave you with a home loan that has a higher interest rate than it should have.
If you would like to learn more about home loans, contact a lender today or visit http://www.firstmortgagecompany.net. You can find out how to apply and the steps needed to get a loan to build or buy a house.Share