Are you interested in building your own home or someone who is a home builder looking for financing? Construction loans are short term loans that can be used to help build a real estate project. If you are interested in constructing a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and want to learn more about your financing options, contact Foundation Mortgage today for a consultation. We can help you determine the best financing solutions for your unique situation.
How Do Construction Loans Work?
Construction loans, sometimes called self build loans, offer a home owner the funding needed to build a new house. The loan is intended to cover the building costs of the project, and once the construction is complete, a borrower can obtain a new mortgage for long term funding and to help pay off the construction loan, or they can refinance the construction loan into a new mortgage. Since most construction loans cover the price of the property in addition to the price of the construction, the lender is more involved in the process than they tend to be with a standard loan. You will need to provide plans for the construction of the home, and include a budget and schedule.
You may only need to pay interest payments on the construction loan while the home is being built, and repayment of the loan balance usually begins when the project is complete. Although construction loans can be considered risky and tend to have higher interest rates than standard loans, they do offer a number of benefits, including, flexible terms, you don’t have to make loan payments until the construction of the home is complete, the construction loan can be transferred to a new mortgage, and you can have the freedom to design your own home to your specifications.
Considerations and Requirements for a Construction Loan
The requirements for a construction loan tend to be stricter than a traditional loan. It may be more difficult for a borrower with a limited credit history to secure a construction loan since there may not be enough collateral because the home has not been built yet. Therefore, a credit score of 680 or higher is desired when applying for a construction loan. When securing a loan, you will need to submit a structured building plan that provides details including the size of the home, who will be building it, and what materials will be used to build it. Most lenders will also require a 20-25% down payment with a construction loan.
Applying for a Construction Loan
If you are interested in using a construction loan to build a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, Foundation Mortgage can help. Contact us today for a consultation.