Why Choose Construction Loans to Finance a Fixer-Upper?by Community Lending Group Let Our Qualified Team Qualify You
Are you searching for a great deal on fixing up your old home? Buying a fixer-upper can be a smart investment. Traditional mortgages generally won’t include financing the cost of repairs and renovations to the house. This means you need to be financially prepared to cover significant renovations. Fortunately, mortgage lenders offer construction loans for both purchase and refinance transactions.
Before we delve in deep to know more about construction loan and how to qualify for it as well as choose a construction loan lender, let’s take a look at why people prefer to buy fixer-uppers. Well, fixer-uppers come with a lower price, less competition, and with the potential for fast equity building. But, why choose construction loans to fix up your home?
Construction loans are shorter-term loans that cover the cost of building or renovating a house. They charge higher interest rates than your mortgage but helps in lowering your monthly payment as you are only required to pay interest. In this financing option, the lender pays a home construction loan to the contractor which either gets converted into a permanent mortgage or paid in full once the home building is completed.
The construction loan generally covers and pays for closing costs, land, plans, permit, fees, labor, material, interest reserves, and contingency reserves. Broadly, there are three types of construction loans:
- Construction-to-permanent Loan
- Construction-only Loan
- Renovation Construction Loan
How to Qualify for a Construction Loan?
Building your home gives you a chance to have everything you want in your property. However, the process involves a lot of time and complications. So, you must carefully select your loan financing option. The construction loan lenders will review your credit score, repayment plan, debt-to-income ratio, and down payment.
The construction loan lenders require your debts to 45 percent of your income or lower, a credit score of 680 or higher, and a down payment of 20 to 30 percent of new construction or maybe less for some renovation loan programs. For the construction-only loan, the lender needs to be sure whether you will pay the balance in cash or refinance when the construction is completed.
How to Choose a Construction Loan Lender?
Finding an experienced lender who can lead you through the process without any hassle is both significant and critical. To start with, it is better to compare their rates and terms. It is highly recommended to get prequalified for fixer-upper and construction loans before starting the process.
Created on Nov 22nd 2018 14:05. Viewed 110 times.
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