How to Get a Construction Loan

Step 2 –

Get pre-qualified for a loan. If you know how much you think you want to pay each month on your mortgage, in todays' computer savvy world, you can go on the internet and search "mortgage calculator" to determine home much money you can borrow for a certain monthly payment amount.

But just because you think you can afford it, does not mean the bank is going to loan you that amount. There are a lot of factors a bank uses to consider your qualifications. A mortgage institute will help to determine if the requested loan amount is within your budget and obtainable by using factor such as "loan to debt" and "income to debt" ratios. This is valuable information before you run out and buy land.

• Realize that most loan products typically are impacted by banking and industry guidelines. In recent years, qualification have become tougher. These guidelines help to more clearly define a customer's qualifications. For example, if you have a very high (FICO) credit score with land free and clear, you have more loan options than the person with a very low (FICO) score and no land equity.

• For a construction loan, you need to be able to lay out your entire project to the bank.....paint the picture. What are you going to build, who will build it.... a contractor or you? This is needed before they can recommend a program and approve your loan. For instance, if you intend to live in the home after the project is complete (owner-occupied), your options, rates, and even potential lenders may be very different than the same loan to an 'investor' who intends to immediately resell the house.
Do not be overwhelmed, let the experts help you through this pre-qualification process.

Log in next week for Step 3!