How to Get a Construction Loan

Instructions

• 1

  First of all, find a bank or any other lending institution which is offering construction loans. You must keep in mind that the construction loan is more complex than house mortgage and you may get troubled by many problems afterwards (such as monthly payment being entirely different), if you don’t follow the procedure in the right way. Therefore, you have to ask the loan officer all the questions in order to get fully aware of the process.
• 2

  Now, get pre-approved so you may know how much amount you can take as a loan to construct your house. Moreover, you should know that how long you are planning to live in your house or you are just looking forward to construct it for some investment purpose. These decisions are very important to make because they will decide your finance preferences.
• 3

  You need to assess that whether you want to pay fixed interest rate or floating. You can select floating interest rate, if you hope that the rates will come down in the near future. Besides, you should know that whether the interest rate will remain same after the construction is completed (when the loan will convert to a mortgage).
• 4

  Select a builder and sign a written construction contract with him. The agreement should be clear and should also include the amount which the builder is expecting to receive. Furthermore, it should also be mentioned that whether the amount includes the sales tax (if applicable) or not.
• 5

  Your lender may require construction and liability insurance which can either be provided by you or your builder. It is to be kept in mind that some banks also ask for workman’s compensation. If your builder hires subcontractors, he will need to send letter to the bank that he doesn’t have workers.
• 6

  You must make sure that your loan is structured properly and if you have any kind of doubts in your mind, do consult with a real estate attorney.