![]() ![]() Plus, along with evaluating your credit score and overall financial situation, lenders will also closely examine your builder. However, “given there is inherently more risk in financing a construction project, securing a construction loan is a more extensive process than obtaining a traditional mortgage,” explains Steve Kaminski, head of residential lending at TD Bank.įor instance? “Some lenders may require marginally stronger credit scores or increased documentation to ensure those risks are mitigated.” Qualifications for a construction loanĪs with any other loan, you really need to have your finances in order. And you will make interest-only payments until the home is completed. While your home is under construction, you will be charged only interest on the amount disbursed to your builder, according to Quicken Loans. But the specific rate will depend on the type of home you’re building, its location, loan terms, and more. Interest rates are also typically higher for a construction loan, usually by around 1%. This down payment is based on the combined cost of the land and estimated construction costs.įor instance, if the land you are buying costs $150,000 and your estimated homebuilding expenses are $250,000, your down payment must be at least 20% of $400,000, or $80,000. As such, you will typically need to make a down payment of at least 20%. A construction loan is short-term or temporary financing that funds your home build and is paid out through a series of installments as the construction advances.Ĭonstruction loans are considered riskier than standard home loans, since no house exists that the lender can secure as collateral. ![]()
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