New construction loans are taken specifically by individuals who are planning on building a house or any residential area from the ground up. Because it only runs for the course of the building project, this is subject to a higher interest rate and higher deposits. A separate loan is needed in order to pay off the construction loan, which is usually only for a year. With new construction loans, there is no collateral to back up the loan, since the project starts from zero. Compared to a traditional loan or mortgage, new construction loans are not granted in a single payment or a lump sum.
New construction loans are given in installments, called “draws,” and an inspector visits the construction project before issuing the next draw. The subsequent draw is dependent on the percentage of the project completed and is done in phases. With higher risks and a shorter loan period, lenders require a thorough application process.
Here are a few tips on easy approval for new construction loans:
- Prepare detailed plans. A lender will require complete details on the plans for the building. This includes blueprints, site plans, and all specifications of the house, and the projected timeline, and an estimated budget for construction. Choose a reputable architect to draw up these plans as well as the estimated budget. Determine which permits must be secured and include all fees in the budget. All materials must be specified and included in the budget as well.
- Get a trusted builder. Lenders often disburse payments directly to the builder, so select a reputable one before applying for new construction loans. The builder, along with the architect, will work side by side during the construction project, so choose the ones you can definitely trust because the lender sends out an inspector to monitor the progress of the building. Make sure that all permits and licenses for the builders, architects, and contractors are complete, as the lender also needs to require these documents during the loan application. Select backup builders or contractors as the lenders also approve of the ones you hire, and it is best to be able to present choices and still have the ones you trust on your side.
- Get an appraisal. The entire project will need to be appraised professionally to determine the value of the land and the building once it has been completed. Some lenders have their own appraisers, but having a personal appraisal will help get you ready for the loan application process.
- Boost your credit score. Pay off debts and avoid spending big money at least 6 months before applying for the loan. A higher credit rating is standard for all loan applications, but new construction loans often require 680 or higher. Boosting your credit rating will make it easier to get approval.
- Prepare the down payment. Apart from the expenses of building a home, including the down payment in your budget. Paying over twenty percent of the down payment will mean you will not have to pay for the Lender’s Mortgage Insurance, which is a separate amount as well.
Building a new home is never easy, but it is a fulfilling experience from start to finish. Keep these tips in mind as you begin your journey into building a new home, and get a higher chance of being approved much easier for your new construction loan. Looking for a new construction loan visit the best loan provider blakemortgage.com.