Building a new home or even starting a home project can add up to be a steep bill. Not all home owners have the money it takes to start these projects but in the case of many New Jersey residents, these projects are necessary. For those who need to get started, consider construction financing to help you get started. Getting a loan is never easy so we’ve compiled some steps to help you through the process.
Pick What Works Best for You
When considering construction financing, know that you have many options to choose from. Most construction loan choices will include 30 year fixed, 15 year fixed, 1 year ARM, 3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM or interest-only loans. There is the option of choosing a short term loan of one year that can be refinanced into a new conventional mortgage loan once your construction project has been completed. While this option allows for flexibility when shopping for conventional mortgages, you will have two sets of process costs and closing costs.
Getting pre-qualified for a loan will help you through a few steps of the construction process. First, it will help you understand your budget better. Second, you will know what your monthly mortgage payment is going to be. This step is necessary and understanding your construction project as a whole. You want to make sure you can afford the project before you start the project.
Do Your Research
Don’t stop at the first bank you find and get a loan. Shop around and go to different banks in your area. It is best if you can find a bank that offers construction loans or has a construction loan officer. It’s a rare find but sometime it’s possible. Additionally, you could call a construction loan broker to find the best bank to work with for your construction loan.
Experience is Key
Construction loans are complicated. Because of this you want to work with a lender who has some experience in construction loans. While finding a loan officer who knows construction loans well can be difficult, it’s worth it. Working with someone who has previously worked on construction loans will help the whole process go smoothly. If you work with any loan officer despite their experience, they may end up just trying to sell you something you don’t need.
Submit Your Application
Your application will be a snapshot of your financial state. This will help the loan officer determine your qualification. They will carefully analyze the document and others such as your credit report. One of the main aspects the loan officer will be looking at is your debt to income ratio. Your debt to income ratio represents how much of your monthly income goes to your debt payments. This ratio must stay within the range of 36% to 45%. The only time this ratio is overlooked is with applicants who have an exceptional credit score.
Find Your Builder
The home builder or contractor you choose for your home project factor into your construction loan. There is a part of every construction loan known as the builder’s package. This includes information about your builder such as: resume, references, credit, costs, materials used and the contract. Finding a home builder and establishing a contract with them is an important part of getting construction financing.
After you have completed these key steps make sure you also get construction insurance and ask for a copy of the estimated construction loan budget. Finding and receiving construction financing isn’t always easy but it can be worth it in the long run. Get started on your dream home today and give us a call.