Welcome back! Yesterday, we defined what a construction loan is and the initial stage of application. Initially, the process can seem confusing, but these posts aim to simplify the process.
One thing to strongly consider is prequalifying for permanent financing. Remember that a construction loan is generally much larger than a traditional loan. As a result, the lender will be assessing your risk profile in a far more detailed manner. Also, a construction loan is a high-risk investment for a bank, and they’re counting on the fact that the building will have some sort of reasonable value. To offset the risk, lenders have extremely strict qualifications.
You may want to consider speaking with a mortgage lender in order to understand the proper amount of money you qualify for. This helps to create realistic expectations for the project. To do that, you’ll need to provide information about your available cash, your current income, and assets to be used to secure the loan. You’ll also need information about any outstanding debt, liabilities, student loans, or car loans. Don’ forget to bring in your recent credit card statements, and your two most recent pay stubs. Put these in a file and include bank statements and tax returns from the last three to five years. Once you have all of this information, you can confidently consider yourself prepared to see a banker regarding your construction loan.
Come back tomorrow and we’ll talk about selecting a builder and the application process.