Financing a new home or renovation project can at first seem
confusing, intimidating and a bit overwhelming.
But you can breathe easy, because it’s not as hard as it sounds.
The first thing you need to do is find a lender that will
loan money for construction projects. Though many national lenders have
construction loan departments, they are often unfamiliar with land and
construction pricing in our area. We
suggest you also talk with small lenders like regional and local banks when
doing your research.
Once you select a lender, they’ll want to know what you are
building or proposing to build, so they can perform their appraisal. Don’t
worry if you don’t know yet, or don’t have full drawings to get approval for
the loan. Most lenders can get an appraisal from the Schematic Design drawings
prepared by your Architect. Once the
lender receives the appraisal, they will let you know how much money they are
willing to lend.
Generally most lenders offer the following:
70-75% Loan to Appraised Value
Terms of 1-2 Years
Interest Only Payments During Construction Period
Loan Origination Points of ½ to 2 percent of the
Lenders do consider equity as cash so if you have a lot of
equity in the home, that can help during the approval process.
It’s best to start the loan process early in the design
phase so you’ll have plenty of time to work through things like income
verification, construction budget review for the home, a financial statement
review, and appraisal. Then you can focus on the most important part: building