Knowing how to acquire a New Home Construction Loan is an important process. Below are some tips to help you on the road to getting the loan that you need.
When considering a New Home Construction Loan, it is important to understand that a Construction Loan is considered a “Story Loan”. This is because the lender will need to know all of the details of your intended project before they will be willing to approve a loan.
Once you attain your loan, you will not be required to make a monthly payment during the time that your home is under construction. Construction Loans usually consist of interest-only payments during the construction itself and are due in entirety upon completion and certificate of occupancy.
The way it works is that interest reserves are added to the amount of your loan and the payments are made from this account. However, it is not free as the reserve is added to your construction loan amount. It is important to factor this in to your cost.
In order to get the best loan possible, you may want to consider shopping around to more than one lender. Many times banks will not even have a construction loan product, or if they do, they will only offer one and therefore be significantly less competitive in the marketplace.
In this case, you can seek out a construction loan broker who will most likely have access to hundreds of banks and won’t cost you a dime for his services since they acquire loans at wholesale rates and then pass them on to clients at retail.
Once you have found your broker, the first thing he or she will need is a fully completed application. The (1003) loan application will fully outline your financial situation. It will inform the loan officer of what kind of loan you are looking for, how much money you require, how much income you have, where you live and if you rent or own, who your employer is, as well as provide them information regarding your assets and liabilities.
Once completed the loan officer will use this, your credit rating, and other documents to determine whether or not you qualify for the loan. This process results in a ratio called the income to debt ratio which is the percentage of monthly debt payments should never be more than 36% to 45% of your monthly income. However, in some instances, if you have an excellent credit score and history, some banks will allow you to exceed this ratio.
Decide on Rates
Once this process is completed you will need to decide whether or not you are going to lock in or let your interest rate float in case the rates will go down. If interest rates are currently rising, then it is recommended that you choose to lock in your interest rate. If the interest rates are somewhat stable, then it would be wise to relax. However if they are headed downward, the option to float would be recommended.
If you have chosen a loan that does not allow you to lock in your rates upfront, then it is possible that your monthly payment will be higher due to an increased interest rate.
In summary, there are many steps to acquiring a New Home Construction Loan. As long as you are patient and willing to provide all of the required documentation, there isn’t any reason why you can’t obtain a loan for your new home.