Important Things to Remember in Getting a Home Construction Loan

Ready-built homes are often considered by some people who are looking for homes because they can just easily move in if they were able to purchase the home. But for people who want to build their own home with their own customizations and preferences, then getting a home construction loan may be suitable for you.

A home construction loan is a type of loan for people who want to build a residential property from scratch. It is often short-term and only covers all the construction-related expenses. Here’s a guide to construction loans, particularly in home construction.

What are the important things to note when applying for a home construction loan? We laid it bare in this article, so read on.

You will get the money by draw

Unlike other loans, you wouldn’t get the cash in a lump sum. You will get the cash depending on which phase in construction you are in. This is usually backed up by all the expenses which include the construction materials, manpower, and consultation services. Basically, your loan is for home construction and home construction only.

It is a short term loan with higher interest rates

Since it is a short-term loan, and often costs more than any usual loan (car loans, personal loans, etc.), it comes with higher interest rates. Make sure that you are financially capable to shoulder this. If not, you still have other options like refinancing — turning your home construction loan into a permanent mortgage. 

Treat it just like any type of loans

Although a home construction loan comes with a higher interest rate, you should not forget that it is still a loan nonetheless. So remember to check your finances and your credit score. Consider financial advice regarding this loan and explore your options.

Just like any other loan, the payment terms are affected by different factors such as your credit score and the amount of your down payment. 

Explore your options

There are plenty of home construction loan providers out there and they provide different interest rates and payment terms. This is a major investment and it is better not to rush anything when it comes to this. Always inquire about flexible payment terms that you think are best for your current financial state. 

You need a licensed contractor or builder

Financial institutions often require you to have a licensed contractor beforehand when it comes to this type of loan. This assures that the construction work is handled by professionals and that they comply with government standards.

Make sure you have the complete paperwork

Apart from having a contractor beforehand, you should also have detailed paperwork for your construction plan. This includes the overall expenses including the manpower, construction supply, consulting services, and other construction-related expenses. This would be the basis of the cost of your loan and if the creditor would approve it for you or not.

Make sure that you thoroughly plan everything before getting a home construction loan. It would probably be best if the last step would be finding the creditor that is right for your home construction project. It is better to have your home plan lined up already with your preferred licensed contractor. This way, the only remaining decision you are going to make is to which creditor you are going to get your home construction loan.