If you’ve decided to build your own home, congratulations! It’s never too late to start thinking about your future and the future of your children. Having your own roof under your head is rewarding after years of hard work, so don’t wait a minute longer and start building right now.
But first, you’re here because you need financial advice.
Home construction is a huge investment. You need to be extremely careful with your money and your paperwork, especially if you’ve decided to get a construction loan. Though very helpful, these loans come with a multistep application process that requires patience and time.
Here’s a quick overview of everything you need to know:
Construction Loan Paperwork
There’s a long way ahead of you, so let’s get you approved for a home construction loan as quickly as possible. Without much ado, almost every bank will need you to submit your financial record, along with your savings from the last 6 months, your deposit size, and your tax return.
But that’s not all.
Complete construction loan paperwork includes:
The most important piece of information in this paperwork is the final price of the build, which you cannot calculate with precision unless you have all the information pertaining to the building stages, the building project scope and timeline, just as well as your drawdown schedule.
All contracts and plans must be signed and contract-approved.
And in order to release the first lot of funds to the builder, you need these as well:
–Quantity surveyor report
-Evidence of builders insurance
How Do Construction Loans Work?
You should know right off the bat that home construction loans can be pricey. Not only are they more expensive than traditional mortgages but they also come with a short repayment term and a variable rate. That being said, you’ll have two options for repaying your construction loan.
The first, of course, is to pay off the loan by the end of your repayment term. The second option is to convert the unpaid amount of your construction loan into a traditional home mortgage. Needless to say, this depends on the specific type of home construction loan you choose.
Types of Construction Loans
There are five main types of construction loans for you to choose from:
1. Construction-to-permanent loan
2. Construction-only loan
3. Renovation loan
4. Owner-builder construction loan
5. End loan
Unless you’re a veteran applying for a Jumbo VA loan (if you are, you can follow the link to check VA loan rates today), you’ll be choosing a variant of these five types of home construction loans. Saying which one is the best is impossible – each is designed for a specific financial scenario.
With a construction-to-permanent loan, your unpaid loan will be converted into the home mortgage, while construction-only loans offer an option to take out two loans – one for construction costs and another for the mortgage. End loan allows you to buy a completed home from the builder.
Home Construction Loan Tips
There are a couple of important things that can help you save a lot of money in the process. Choosing the best builder and the most suitable type of loan for your financial situation are both crucial, so don’t rush with your final decision. If need be, consult with your financial advisor.
In fact, applying for a construction loan without an advisor is not recommendable.
With the amount of paperwork needed, it may be better to have a professional to help you read the fine print on every document provided by your loaner. That way, you’ll get to keep your peace of mind and make sure that you’ll be paying back exactly the amount you’ve agreed on.
In addition to that, the following tips will help speed up the process:
-Provide all paperwork upfront
-Be careful of overcapitalizing
-Get a First Home Owners Grant
If You Are in Need of a Loan…
If you need a home construction loan, don’t settle for the first loaner until you’ve done thorough research and compared different options available on the market. Home construction should not be rushed.
Happy building and good luck!