It's a great day when you can move into your new house. After you move in, it will help you sleep at night to know that you got the right construction loan to pay for it. Today, there are so many options that it might be hard to know where to start looking and which features are the best. Here are some tips that will help you get a good deal on a construction loan.
The first thing you'll need to do is talk to a lender to find out how much money you can get for your loan. Once you know that number, you'll know how much money you need to spend on the whole project. You should also have a good idea of what other costs will come up, like closing costs and other costs to make sure the house has all the utilities it needs.
After that, you need to choose a house plan. After you decide on a general plan, you need to talk to an architect and a builder. The architect will charge a pretty big fee to adapt the general plan to your specific design, so you should know what it is and how many changes it will give you. After talking to them and getting your plans drawn up, you'll have a pretty good idea of how much your dream house will cost. Once you know how much your house will cost, you will need to go back to the drawing board and change it, especially if it costs more than your budget allows.
When your plans are finished, you can talk to your lender about getting a construction loan. Before you get any money, he or she will want to see these plans. Keep in mind that a preapproval, which is often free, is not the same as having the construction loan.
You should learn as much as you can about the different types of construction loans you can get. If you have a construction loan that can be changed into a permanent loan, it will be easier. This will save you money and make getting the loan easier, since it will be from the same lender. Make sure this part of the deal is there.
In most cases, a 10% down payment is needed to qualify for a construction loan. If you want to avoid having to pay private mortgage insurance, you will need to make a 20% down payment. Another way to avoid PMI is to take out two loans at the same time. This means getting a first mortgage for 75–80% of the price and then getting a second mortgage for the remaining 20–25%.
When it's time to switch from a construction loan to a permanent loan, make sure you know how interest rates tend to move so you can decide whether a fixed-rate mortgage or an adjustable-rate mortgage would be better. Some mortgages also let you have a small cash flow, which you can use to make improvements to your new home.
