A construction loan gives a homeowner the opportunity to build the house of his or her dreams. No longer is he or she relegated to cookie cutter homes in a neighborhood. Now is the time to use that paid for lot or land as equity for a construction loan to build your house. Use the equity as a down payment and avoid taking any cash out of pocket in the initial part of the process.

A construction loan is provided for a borrower to construct a house or building on property. Since a construction loan is a nonstandard loan, it is generally set up as an interest only loan and payments are required during the construction. Also, many lenders require that a borrower provide a down payment of 5 to 10 percent. If the borrower owns land, the equity may be used to secure the construction loan in lieu of a down payment. Janks Construction can help you with all of your construction needs.

Difficulty: Moderate

Things You'll Need:
Deed
Loan application
Loan documents

Instructions

1. Find a lender who offers construction loans. Generally, local banks have programs that provide construction loans, since they offer in-house financing that does not require the loan to be submitted to an outside underwriter.

2. Take a copy of the deed to the land showing you as the owner, your income statements, copies of tax documents, employment verification and equity statements from retirement accounts, such as a 401K, to a lender who offers construction loans.

3. Complete an application for a construction loan. Tell the lender that you want to use the equity in land that you own to secure the construction loan. Give the lender details, such as how long the project will take, the total estimated cost and future plans for the constructed property, such as business or residential.

4. Sign the loan documents and supply the title to the land. Use the funds provided by the construction loan to complete the project. Make the payment required on the loan while the construction is taking place.

5. Convert the construction loan to a residential mortgage after the construction is completed. Obtain a mortgage to pay off the construction loan and include the land with the new mortgage. Contact a mortgage broker to receive quotes on loan interest rates. This opens up options for a lower interest rate loan, which saves you money.

Tips:

-Ask the lender to pay the builder directly, as soon as preset requirements are met. This keeps the builder accountable and keeps you from spending the funds on other items for the home.

Warnings:

-Construction loans are charged a higher interest rate than a traditional mortgage, due to the risk to the lender. Be sure to inform the builder that the higher interest rate is not desirable and you would like to refinance to a longer-term mortgage with a lower rate. In other words, you want the house to be completed as soon as possible.

Improve your home with Janks Construction

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