Building Your Dream Home: Preparing For a Construction Loan

September 15, 2022 | Posted by: Sherry Corbitt

Have you been thinking about your dream home recently? For some people, they are able to find and purchase their dream home. Yet for others, it could also inlcude building it. Although it is not the most popular route, you can get a construction loan and build your own home. If you are not familiar with this side of lending, then do not worry. We will analyze the steps you should take to first prepare for your loan before you secure it.


What is a Construction Loan?

A construction loan is a short-term loan to support you throughout your house buidling process. A construction loan can cover various aspects, including the property land, the construction materials, and the costs to cover construction laborers.

Things to Focus on Before Securing a Loan

Before you start the process of getting a construction loan, you should be focusing on the preparation aspects. Consider the following financial ways you should incorporate before getting approved for a loan.

Budgeting

In preparation for any loan, you must have a steady budget. Your budget should enable you to adjust your financial lifestyle to save for your loan. Budgeting can be challenging for everyone, yet it is essential when preparing for a loan. When you take your budget seriously and focus on your primary goal, it will undoubtedly be possible for you to stick with it. When you make your goal realistic and attainable, there is no reason for your budget to give out.

Saving

As mentioned previously, saving for a loan is one of the most vital aspects. To, first of all, even be considered for approval, a lender will want to see how much of a down payment you have. A typical construction loan down payment is 20%, yet in some cases, it can differ. Although the down payment is vital, there are also some other costs that you want to consider. This includes the lender, broker, and lawyer costs, appraisals, and other property assessments. Ensure that you have a set account dedicated toward your savings for your loan. Setting a savings plan is also vital, allowing you to have the proper funds for your loan.

Planning

This will be one of the most vital aspects of planning. Planning your house layout will be an essential factor. Although you do not have a loan yet, you will need to have a whole plan on size, structure, and materials used for the house. Unless you have building experience, it will be best to hire a planning designer. They will help confirm measurements and the overall structure of your house.

Looking at Potential Lots

Before considering any construction loan, you need to know the lot on which you want to build your house. This is a huge factor since you both need to love the area and ensure that it accommodates the type of house you want to develop. This includes if it is big enough to fit your desired home and enough room for front and back yards. Yet you need first to know what area you want to live in before you even look at listings. This will ensure that you solely look at properties that you know could work for you and your preferences.

Assembling Your Crew

Although this step could be done after you secure a loan, having this done beforehand can save you time. Assembling your designing, building, and equipment team can take weeks. You do not want to worry about this after you get your loan since this can either slow down the process or make the lender think twice on the loan. You also need to consider an appraiser since this will be a must for the loan. Although you will not be able to book the appraisal until you receive direction from your lender, you can speak with potential appraisers in your area.

There certainly are many steps involved in just the preparation aspect of a construction loan. You may wonder what should be done once the loan process begins. Stay tuned for our next blog, covering how you can secure your construction loan!

Sources

-Bell, Linda. Bundrick, Hal. M (2021). How Construction Loans Help Finance Your Dream Home. Nerd Wallet. Retrieved from https://www.nerdwallet.com/article/mortgages/construction-loans

-Craven, Jackie (2022). Before You Build Your New Home: 5 Preparation Steps. The Spruce. Retrieved from https://www.thespruce.com/before-you-build-steps-new-home-175909

-Ibboston, Christine. Mercury, Guelph (2022). Ask The Money Lady: How Should I Finance Building My Dream Home. Toronto.com. Retrieved from

https://www.toronto.com/opinion/ask-the-money-lady-how-should-i-finance-building-my-dream-home/article_c271a5ed-b405-5d4e-a56f-66f23f2ad988.html?

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