A Guide to What You Should Know About Construction Loans

Building your own home is an extremely rewarding experience. It allows you to design everything from the very beginning, but there are additional benefits to building a new home.

Instead of paying a real estate agent and selling your old property, you can save yourself a lot of money by building your own home. You can usually save yourself as much as 20% of the asking price of an average home in that neighbourhood. Even if you only plan to sell your property a few years after purchasing it, you could still come out with a lot of money. 

Today, let’s explore one of the options you can consider to finance the construction of your home. Here’s what you need to know:

What is a Construction Loan?

A construction loan is a loan that is meant for people who would like to build a new home or repair an existing home. In other words, this is a particular loan that allows you to take out a loan for something that does not yet exist.

Anyone thinking about building a brand new home can benefit from a construction loan. If you are unsure about how much your home will cost, this particular type of loan could be the key to helping you save money.

How Does it Work?

A construction loan is pretty simple. You go to a bank or lender, and they will provide you with a construction loan commitment. This confirms that you can get a construction loan and how much you will be able to borrow.

Once you have a construction loan commitment in your possession, you will approach a homebuilder. The bank will tell you exactly how much you can borrow. Once you know how much you can borrow, you can come to a builder to discuss the cost of building your brand new home.

How to Apply for a Construction Loan

1. Check Your Credit Score

The first thing that most banks ask for before giving you a construction loan is a copy of your credit report. You must check your credit report to make sure it is accurate. If you find any inaccuracies, you should dispute them with the credit bureau and get them cleared up as soon as possible.

2. Get a Bank Pre-Approval

Applying for a construction loan can be tricky if you have bad credit. However, if you have high credit, you should be able to get a construction loan without any issues. Before looking at different homes, make sure you have a pre-approval letter. This will prove to the builder that you are serious about building the house.

3. Look for a Loan Officer

The last thing you will want to do before you get started is to find a banker who can help you. As a first time home builder, you will want to look for someone who has a lot of experience building homes. If you can find a loan officer with a construction loan background, it can make the entire process a lot easier.

The Bottom Line

The key to getting an outstanding construction loan is to make sure you are prepared before you begin. Getting pre-approved by a bank is an important step that every first time builder should take. It shows the builder you are serious about building. It will also make it easier for you to get approved.

If you are looking for help to speed up the process and find the perfect loan to get your dream home, we can help you. FinanceCorp is a financing firm committed to helping our clients get the best home loan to suit their needs and goals. All of the Finance Managers at FinanceCorp are fully qualified, experienced mortgage professionals who live and breathe finance. You can contact us online or find us in Perth, where we’re based.