A Construction loan is typically short term with a maximum of one year, and have variable rates that move up and down with the prime rate. The rates on this type of loan are higher than rates on permanent mortgage loans. To gain approval, the lender will need to see a construction timetable, detailed plans and a realistic budget, sometimes called the “story” behind the loan. We offer competitive variable rates during the construction term that easily transition into a fixed rate mortgage upon completion.
Once approved, the borrower will be put on a bank-draft, or draw, schedule that follows the project’s construction stages and will typically be expected to make only interest payments during construction. Our construction program will require that a draw schedule be implemented and carried out through a series of inspections, like foundation and framing; just to name a few.
How to qualify for a construction loan
As with traditional mortgages, “minimum credit scores, maximum debt-to-income ratios and down payment requirements vary from lender to lender, and are usually based on the amount of money borrowed,” Nard says.
Lenders will review your:
- Debt-to-income ratio: Lenders generally expect your debts to total no more than 45% of your income, and lower is better
- Credit score: Most construction loan lenders require a credit score of 680 or higher
- Down payment:A 20% to 30% down payment is typically required for new construction, but some renovation loan programs may allow less
- Repayment plan:With a construction-only loan, the lender might want to know if you’ll pay the balance in cash or refinance when building is complete
Construction Loan Features and Benefits
- Low Credit Score – Borrowers with credit scores as low as 620 can qualify
- Low Down Payment – Down payments as low as 3.5% with an FHA Construction Loan
- Any Project – New build or kitchen renovation, there are construction loans for your need
- Debt-to-Income Ratio – Borrowers with debt-to-income ratios as high as 50% can qualify
- Up-Front Closing – Borrowers don’t have to re-qualify at the end of construction
Upon completion, which is defined by a certificate-of-completion by the construction company or engineer and full payment of contractors (and often their signatures on lien releases), we will roll the construction loan into a fixed rate mortgage.
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