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Many people don't consider building a new home because they are intimidated by the loan approval process. But how difficult is it really to get a construction loan in California or wherever you live? The answer is: it depends. While you may have to jump through a few extra hoops compared to applying for a conventional home loan, getting a construction loan is certainly an attainable goal. Myth 1: You Must Own Land While it would be great if you owned a piece of property to build your home on, this isn't one of the requirements to qualify for a construction loan. In fact, many construction loans are structured to pay off any existing land loans. This also means you don't have to worry about consolidating several loans later on when it's time to get a mortgage. Myth 2: You Need Perfect Credit Obviously, having perfect credit would get you the best deal on a construction loan. But the reality is that only very few people have a nearly perfect credit score. The good news is that good credit can still open the door to an affordable loan for you. But the easiest way to find out is to talk to a lender as soon as possible. Plus, if your credit score increases your interest rate beyond the point where the loan is affordable for you, then you can always takes steps to improve your numbers. In addition to paying your bills on time, you may want to evaluate your debt ratio and the amount of open, revolving accounts. Additionally, you should talk to your lender and ask them what you can do in order to get approved for a better interest rate. Myth 3: You Have to Wait Building a home obviously takes some time, because there are a lot of different steps involved in the process. First, you have to find the land. After you have successfully evaluated and purchased the land, you have to find a general contractor to build your home for you. While you're working with an architect and your builder, you have to get a lender to approve you for a construction loan. And all of this must happen before you can start building. While there is a lot of red tape involved with building a new home, it doesn't take as much time as you might think. And getting the construction loan might actually be the easiest part of it. While the lender will certainly evaluate your building plans, contact an appraiser, and talk to your general contractor, the process to approve your construction loan is already set in place. Your lender may even help you speed up the process by letting you know precisely what type of documentation you have to provide. Myth 4: You Have to Pay in Full Most construction loans are set to mature within several months to 2 years from the time building has commenced. That's because construction loans are designed to pay for your house to be built. Your general contractor will receive a certain percentage of the funds at different points in time, usually based on the progress of work. Technically, your construction loan will come due in full at the end of the allotted time period. But you and your lender know very well that you're not going to pay the full amount out of pocket. Instead, you'll have to shop around for a mortgage to pay off the construction loan. The trickiest part about the conversion from a construction loan in California or wherever you live to a mortgage is that your home must meet a certain appraisal value. However, as long as everything has been constructed as planned, you shouldn't have to worry about that.
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