Building Your Dream Home: Securing a Construction Loan
September 22, 2022 | Posted by: Sherry Corbitt
Previously, we examined some important ways to prepare for a construction loan. Now that your preparation is complete, it is time to dive into securing your loan. This stage can be overwhelming, especially if it is your first construction loan. Consider the following actions to take during the process of your loan.
Getting Approved by a Lender
Now that you have your savings and plans together, it will be time to get approved by a lender. The best way to go about this is through a broker. They have connections with many lenders and they can reduce the wait time and lower interest rates or fees. Yet a broker can also alleviate this step since it can be challenging to find and get approved by a lender who covers construction loans. The best way to get approved is to have all your paperwork ready to go, which quickens the process and shows that you are serious about your loan. Some things you should examine before being approved include: is this a fixed or variable loan, what are their fees, and what terms do they offer.
Once approved, you will discover how much of a loan you have been approved for. This can be either higher, as much, or lower than expected. This factor can be based on the lender, who evaluated your file and the property. If you prepared well, like in the previous blog, you would have savings to cover the rest of the costs. These costs will include the rest of the construction costs, down payment, and other fees.
Once your home is built, you will begin making a scheduled payment for your mortgage. You can choose payment frequency, including weekly, bi-weekly, or monthly. This is all up to your preference and financial situation. If unsure which payment may work best for you, try speaking with your broker. They can offer you some helpful tips on each option, especially with your mortgage amount and rate.
Hire Your Team
Although you may have previously assembled a potential team before you secured your loan, it is now time to hire them. Depending on your experience with building, you may or may not need a small or large team. Your team should include designers, builders, electricians, plumbers, and other house maintenance workers. Your building overseer will handle the main building aspects, including any potential building requirements and things that were overlooked.
Have a Timeline
Although you typically do not need to pay your loan until after construction, you should still have a timeline set. Having a set time from start to completion of your house build will benefit you in various ways. Not only will this eliminate any issues with your lender, but it will also remove any stress about your project. Although there is no way to determine if there will be delays with construction or material deliveries, having a flexible schedule will help you to stay on track.
When you take each step at a time, you certainly can get through the process of your construction loan and build your dream home!
-Treece, Kiah. Witkowski, Rachel (2022). Construction Loans: What They Are and How They Work. Forbes. Retrieved from https://www.forbes.com/advisor/mortgages/construction-loans/
-Thompson, Boyce (2022). How to Secure a Construction Loan to Build Your Dream Home. Dream Home Source. Retrieved from