5 Key Tips for Getting a Home Construction Loan
Originally posted on https://www.news9.com/story/40956379/5-key-tips-for-getting-a-home-construction-loan
You’re ready to build your dream house — but how do you get the funding you need to get started?
Maybe you’re trying to save up money to get going but it seems like it is taking so long. You might be considering a home construction loan so you can get your home underway.
If you’re thinking about home construction loans, there are some things you need to know before you apply so you have the best chance to secure financing. Continue reading this article to learn more about getting a home construction loan that will work for you.
The 411 on Getting a Home Construction Loan
There are a lot of options from builder financing to other options and it can all get very confusing. Our goal with the following tips is to help you make sense out of all of the information you have.
1. Know Your Credit Score
Before you apply for a loan, make sure you know your credit score. The higher your credit score, the more likely it is that you’re going to get the loan.
Besides the fact that a higher credit score can help you qualify for the loan when you have a high credit score, you can get a better interest rate.
2. Get Your Debt-to-Income Ratio in Check
If you have a lot of debt compared to your income, lenders will consider you high risk.
When you want to qualify for your loan, you should pay down debt and decrease spending as much as possible. Your debt should be more than 45% less than your yearly income.
Lower is better.
3. Look at the Project Cost
While you’re pre-qualifying for a loan, you should have a good idea of the project cost so you aren’t underestimating what it is going to cost. Your contractor should be able to give you a good idea of how much your project is going to cost.
4. Have a Cash Reserve
Having a cash reserve will make lenders feel better about lending money to you. Try getting up at least 6 months of cash reserve for after you’re living in the house to put your potential lenders at ease.
5. Be Ready for the Downpayment
A bigger downpayment is another thing that will make the lender feel more at ease. A downpayment shows that you have some skin in the game and you’re much less likely to walk away.
You’re looking at putting own at least 20% to get your home started and if you can do more, you’re more likely to get your approval.
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