Building your ideal house is never an easy or inexpensive task. Most landowners spend a significant sum of money to have a general contractor come in and build their house. There is, however, an alternative that provides you greater control at a lesser expense. This is known as a construction loan, and it may or may not be the key to building your dream house.
Construction loans are mortgages made available to those who want to renovate or build a new home. Unlike traditional mortgages, new construction loans Texas sometimes need considerably lower payments for a short period of time while consumers incur significant labour and material costs during construction. Construction loans may take longer to approve due to the risk of financing against a future structure, but if granted, they provide a fantastic road to homeownership for the majority of applicants.
Borrowers of construction loans must provide documentation of land ownership to lenders. Lenders will sometimes execute a construction loan mortgage that also includes the purchase of a plot of land; however, this decreases the likelihood that a borrower will be able to roll the loan into a regular repayment loan after work is completed. A land title can be used to show ownership of land.
When getting a construction loan, most borrowers should consider the construction to be a permanent option. These loans provide an initial term of interest-only payments before transitioning to standard repayment plans in which a borrower must pay principle and interest payments over the course of 10, 15, or 30 years, until the debt is paid in full. This makes things easier for borrowers since it eliminates the need to renew the construction loan after the project is finished. The conditions for these loans are identical to those for normal construction loans, except that borrowers must be prepared to prove sufficient income to make the entire principal and interest payment once the interest-only term has passed.
Documentation of Income
Construction loans, like other real estate loans, are subject to stringent paperwork requirements. Income verification for normal salaried employees requires two to three years of W2s, at least six consecutive paychecks showing all deductions, three years of tax returns, and any extra income documentation. Borrowers who are self-employed should also be prepared to provide at least two years of bank statements to prove cash flow.
Most lenders need the submission of a builder approval package that includes prior building experience as well as financial papers such as tax returns, current licences, and confirmation of various forms of liability insurance. Lenders want to see proof that the builder has enough insurance to protect you against on-site worker injury claims if a worker is injured.
A construction loan will provide you with the additional freedom you need to acquire land and build a home that will provide you with the solitude and independence you desire. These above-mentioned requirements needed to be met for availing construction loans.