Rome wasn’t built it a day – and neither will a newly constructed home. Creating a house instead of buying a conventional home that has already had previous residents is appealing in a lot of ways. However, there are some downsides that you need to consider before buying the house. One of the challenges of building your own home is getting financing to pay for the house. Here of some of the things you should know before building a new home.
You signed on the dotted line. You are excited to get started. You want to break ground. Not so fast. You need to get a construction loan before you get started. Since you have no physical property to use as collateral for the bank, you need to get a construction loan. A construction loan is a short-term loan that a buyer will take out while their house is under construction. The interest rate is usually a variable rate, and will most likely be higher than a conventional loan. After you get approval for a loan, the lender will start paying money toward the project at specific stages of construction. The loan is an interest-only loan, meaning you are expected only to pay interest.
For any loan, you will need to meet specific credit score requirements. Some loans are more stringent than others. Because of the nature of a construction loan, lenders will require better credit score as well as other considerations. If you don’t have ideal credit, you should work to build your credit up before applying for a construction loan. If you feel like your score isn’t correct, you can get a credit report and disputes any inaccuracies.
In addition to looking at your credit, a lender will look at other factors like the amount of your down payment, the value of the property, the estimated cost of the home, and the builder’s credentials. They want to know as much about their investment as possible. Make sure you have done your homework on the builder so you can be as prepared as possible for applying for a loan.
When it comes to building a home, there are inherent risks to you as a buyer. As much as you would like to trust a builder, there are always things that could change or unanticipated costs from the beginning. Always be prepared when you are budgeting to include emergency funds for things that go sideways while building a home.
Having savings is not only a smart thing to do to be ready for any emergencies that happen, but also shows a lender that you are a good investment for them. Do as much as you can to save money, especially before you apply for a construction loan.
You can realize your dream to get into a newly constructed home. As long as you prepare for contingencies you can start the process today.