Getting a home construction loan can be a challenge since there is no collateral (meaning you don’t have a home to show for the loan) to show lenders. Here’s what you should know before applying for a home construction loan to ensure you’ve taken the right steps to get approved.
Home construction loans are short-term loans that help individuals pay for the cost of building a home. Unless you’re building a new home with a large, corporate conglomerate (think, spec home), you’ll probably be responsible for securing a home construction loan.
Home construction loans are a bigger risk for lenders than home mortgages because there isn’t a guaranteed asset at the time of approval.
General components of a home construction loan include:
With this method, you close the construction loan and only pay interest during the construction phase. When construction is complete, your construction loan will be converted into a permanent mortgage. You’re usually able to lock in a maximum mortgage rate when construction begins.
While this reduces the fees you pay since the construction loan rolls over into a mortgage loan, expect to pay a down payment that’s 20 percent of the estimated permanent mortgage amount.
This approach treats both loans as separate. Stand-alone construction loans can be appealing if you already own a home and are seeking a smaller down payment, but it has two primary downsides:
Home construction loans have strict requirements to help protect lenders from bad investments. Keep the following points in mind as you plan for your loan application:
Make sure you’re financially prepared to not only build your new home, but to handle costs after you’ve moved in. Synchrony Bank is here to help you manage your savings so that you are successful when applying for a new home construction loan.
Call Synchrony Bank at 844-345-5789 or find us online today to start planning for your dream home.
Federal Reserve: https://www.federalreserve.gov/faqs/credit_12846.htm
NEA Homes: http://www.neahomes.com/custom-v-spec-v-tract-homes.html
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