A Guide to Qualifying for a Home Construction Loan and How it Works

Construction Loans

Building your own home can be a long and expensive process. This is why having access to a home construction loan can be ideal.

What is a home construction loan?

This is a typically short term loan that is used to pay for the cost of building a home. At the end of the construction process, when the house is done, you will need to get a new loan to pay off the construction loan- which is sometimes called the “end loan”.

Banking institutions often impose strict qualifying requirements for construction loans.  You need to be able to prove that you can afford to repay the loan, when you apply.

To qualify for this type of loan, you need to ensure that the builder you use is qualified. You also need to be able to provide detailed specifications to the lender about the building.

How the home construction loan process works:

The home value must be estimated by an appraiser and a large down payment is also required.

A schedule of draws is set up, so the builder is paid out after completing specific portions of the building process.

You will be liable for paying interest on the money you have borrowed.

A home construction loan can help by providing just the right amount of finance for your home building needs. As you build your home, you will need access to a variety of building materials. Home construction loans provide access to finance to enable you to afford renovations on your home. With this type of finance, you need to put a lot of trust in the builder. Lending institutions will want to see that the builder is registered with the National Home Builders Registration Council (NHBRC).

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