Can't Find the Home of Your Dreams? These Are The Steps For Financing Building One With A Construction Loan!

If you’ve searched far and wide for your dream home but just can’t find the perfect fit, building your own home may be a viable solution.

But how do you finance it?

Here's a step-by-step guide for securing a construction loan...

?? 1. Choose a Reputable Lender

Look for lenders who specialize in construction loans. They’ll understand the unique challenges of the process and can provide tailored advice. Perhaps it could be a traditional bank, but more likely it could be a bridge lender. The bridge lender will be more expensive (mortgage rate), but in many cases, it could be the only game in town.

?? 2. Prequalification & Approval

Before diving in, you’ll need to get pre-qualified. A traditional lender will evaluate your credit score, income, and other financial details to determine how much you can borrow. Approval often requires detailed financial records and proof of income. A bridge lender, however, typically only cares about the viability of the project, the builder’s budget, the collateral they will be receiving, the exit strategy, and the construction expertise of the borrower.

?? 3. Present Your Construction Plans

Lenders need to see detailed plans for the home, including architectural blueprints, a construction timeline, and a budget. A licensed builder is also usually required.

?? 4. Determine What Your ’Skin In The Game’ Is Going To Be

Construction loans typically require borrower financial participation in the deal—usually around 20-30% (i.e. the land has been paid for or you have additional assets that can be pledged to the lender). Ensure you have this ready before moving forward.

??? 5. Loan Disbursement (Draw Schedule)

Unlike traditional home loans, construction loans are disbursed in phases as the project progresses. Your builder will request draws based on the work completed, and a lender may conduct inspections before releasing the next portion of funds.

? 6. Transition to a Permanent Loan (i.e. Exit Strategy)

Once the home is completed, the construction loan will typically convert into a traditional mortgage (called a construction-to-permanent loan). Be prepared to refinance if necessary.

Building your dream home might seem overwhelming, but with the right plan and a clear financing strategy, you can bring your vision to life!

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