Any American with the right credentials who fulfills the necessary requirements can find a loan to build a home. These are available through banks and other lending institutions and there are different types of them available in the lending market. A buyer needs to be knowledgeable about each of the different ways of obtaining credit in order to not let the road to their newly constructed home be a rocky one!

Stricter Lending Guidelines

Consumers need to understand that all rates for mortgages, including construction loans, are constantly changing as they follow the trends of the bond market. This means that the present quoted rate will change after perhaps a short period of time and not be available very far down the road. In today’s business climate, a borrower should also be aware that the application process for new construction lending involves an intense application process where the applicant’s credit and equity are carefully scrutinized by the lending institution.

As a result of tighter loan guidelines, the stated income form has become unavailable to consumers. The borrower should consult with their mortgage company concerning the requirements of lien wavers because some investors require that these waivers be drawn up for each construction account. The waivers must be completed and returned on time. When builders employ subcontractors, the borrower must have a clear idea of the terms under which a subcontractor will be paid.

Borrower’s Option

There are several options to finance construction such as: 30-year or 15-year fixed; an adjustable rate mortgage (ARM) in varying lengths; and interest-only loans. Consumers can obtain a short-term extension of credit for usually one year; once the actual building is complete, it can all be refinanced through the newly arranged financing. This gives the purchaser more flexibility when looking for conventional mortgages rather than having to deal solely with construction lenders. There is a popular loan available for new home building today that is known by several different names: one time close; rollover; construction-to-permanent; or all-in-one loan. Whatever the name, they all perform the same function.

Mortgage Steps

New home financing is quite different from traditional financing and there are aspects that borrowers need to understand about them. Below are the steps necessary to obtain a new home loan.

• Pre-Qualify - Purchaser should apply for construction financing from the mortgage lender and be sure to get pre-qualified. After the lender has examined the documents submitted by the applicant, the lender advises the amount of financing being offered.

• Find Contractor - After getting pre-qualified, the purchaser needs to find a contractor to design a home based on how much money is being loaned.

• Lender Approval - The purchaser needs to bring the design of the home to the financier to obtain final approval to begin construction. Included in the builder’s design is a proposed outline of the project information which includes: time line; outline of costs; and terms of payment over the course of the home building process.

• Sign Paperwork - All documentation should be thoroughly read. The documents are then signed which secures the loan and allows work to begin on the new house.

• Finalize Mortgage - When building has been completed, the lender will conduct a final inspection, appraise the residence with the help of the builder and finalize the mortgage. At that time, the borrower has become a homeowner and payment on the mortgage begins at that time.

Potential homeowners need to be careful throughout this process and not be misled by scams or advertisements that are too good to be true. Rates and requirements of all construction loan quotes received should be closely compared. If the above information is used and followed, the path to a newly-constructed home will not be a rocky one!