If you are having your own home built then getting a residential construction loan is most likely going to be a necessity. These loans allow you to have the capital on hand that you need to build your home. They are a bit more complicated to get than other loans and not very many companies offer residential construction loans but there are a number that do. To obtain this kind of loan, you will need to take the following steps:
– Find a bank or finance company that offers these kinds of loans, and make sure that you are speaking with someone who has experience and will give you the right information. Construction loans are complex and you need to make sure that they are handled correctly. You should also seriously consider hiring a real estate attorney to help ensure that the loan is properly structured.
– The lending institution will want to know whether you will live in the house, rent it out, sell it after it is built, or live in it for some time and then rent or sell it. What your plans are regarding the house will determine what your finance options are.
– Decide on whether you want to lock the interest rate on the loan down, or let it float. Locking it down means that you will pay the same interest on the loan month after month; letting it float is a bit risky as sometimes the interest rate will go up and you will have to pay more, but then again, it may go down and you will pay less. If you want to make sure that you are not unpleasantly surprised with high interest rates, go with the locked down rate. Also, make sure to find out what the interest rate will be after the house is completed and the loan converts into a mortgage as sometimes the bank will charge a different interest rate for a mortgage than for a construction loan.
– Make sure that the builder you choose is reputable and honest, and will do good work. Do not select one in haste; take the time to research thoroughly and see whether the builder you are considering is one you will have confidence in. Often, you can look up the company’s name online and see what others have had to say, but keep in mind that no builder will get 100% good reviews. It is impossible for a builder to totally please every single client he has ever had, but if many or most of the reviews are negative, then select another builder.
– After you have chosen the builder, write up a legal contract, sign it and have the builder sign it. The contract should include not only the size and specifications of your home but also whether the price you are paying is inclusive of taxes, whether payment is contingent on the house passing inspection, and what the builder will pay for and what you will pay for. Make it very detailed and clear; again, having a real estate attorney help you is important as often there are details that you may not be aware of that you should know about when drawing up the contract.
– Obtain the necessary insurance, or check with the builder to see what kind of insurance he has. Banks usually require construction and liability insurance but some banks also require workman’s compensation. Some builders subcontract their work instead of hiring employees, if this is the case with the builder you hire, he will need to write out a letter stating this fact for the bank.