How to Choose a Construction Loan

A construction loan is a one-time loan used to build a house. During the construction phase, the lender can lock a rate that will remain locked for the life of the loan. Other lenders require a second closing and a new rate, requiring a renegotiated term before permanent financing is available. While these differences can be minor, they can significantly impact your ability to qualify for a loan. Here are a few things to consider.

 

The first rule is the minimum credit score requirement. Most lenders require a credit score of at least 680 to approve a loan. But some require a higher score. Your income will also be considered. Your financial statements should include information regarding your income and debt. If your income is less than the amount of debt you owe, this is an advantage. A typical lender will require a 20 to 25 percent down payment. But if you have substantial savings, you can always apply for a higher amount of money.

 

The second rule is the minimum cash injection requirement. If you can afford a high loan payment each month, you might be able to complete your construction project with a construction loan. However, if you don't have enough cash to cover the costs of your project, many lenders require that you use the minimum cash prior to the closing. Despite the fact that this can be a difficult rule to meet, it's worth the extra time and effort.

 

While most construction loans are short-term, the terms of construction loans are flexible and can be extended as needed. A typical construction loan is a year-long loan, though some lenders may extend it for a longer term if it makes sense. The structure of the loan is usually such that the borrower only pays interest during the term of the loan, and pays off the principle balance at the end of the term. This type of financing is an excellent option if you need a small amount of money to start the construction process. Click here for more details about this service.

 

The best way to choose a construction loan is to compare rates from several lenders and to ensure you're getting the lowest possible interest rate. Typically, a construction loan is short-term, and you'll be expected to pay it back within a year. A construction loan is a great choice for a home builder with bad credit, since you can get a great deal by researching the market and comparing lenders' terms and fees.

 

When applying for a construction loan, make sure to consider the type of loan you need. Most lenders will require a minimum credit score of 680 to be eligible. Others will require a minimum score of 720 to get a loan. Your income and credit history will be important to your application, as will your financial statements. The lender will also want to see a low debt-to-income ratio, so make sure to consider this before you start your application. Add on to your knowledge about this topic, by visiting this link: https://en.wikipedia.org/wiki/Construction_loan.