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How do we get started? To apply for this program, please contact a local mortgage lender. Applications must be submitted through an approved lender. If you are unable to find a participating lender, your state’s guaranteed loan coordinator can help you find one. Who can answer questions?
Construction loans are a bit more complicated than conventional mortgage loans because you are borrowing money short-term for a building that does not yet exist. A construction loan is essentially a line-of-credit, like a credit card, but with the bank controlling when money is borrowed and released to the contractor.
You might not qualify for a construction loan, which means you shouldn’t rush out and buy land. Instead, call the lender and ask if they can pre-approve you. This process takes only a few minutes.
It also means that when you apply for forgiveness, that you’ll be able to do so with confidence that you qualify for it. One more piece of good news: Public Service Loan Forgiveness is not considered.
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Apply for a new loan after building is completed. You will need to qualify as if you’re applying for a new mortgage. As a result, you need income and creditworthiness to get approved. Arrange both loans up front (also known as single-closing). This approach may minimize closing costs because you bundle the loans together.
Appraisal. The criteria for construction loans are based on the value of the completed product. Getting an appraisal is thus one of the requirements for a construction loan. A licensed appraiser usually estimates a home value. It may seem confusing to appraise a house that does yet to exist.
Qualifying for a construction loan is harder When you apply for a loan to build a home, the lender doesn’t have a complete home as collateral, so qualifying for a loan can be more difficult.
To qualify for a construction loan, your debt-to-income ratio should not exceed 45 percent. This is the percentage of your income that goes toward debt repayment each month.
These loans are typically more difficult to obtain than traditional mortgages because the lender is putting up money for an investment that doesn’t exist yet. To increase your chances of prequalifying for a home construction loan, it’s important to make yourself look as financially sound as possible.
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