Requirements for a construction loan
Construction loans come in handy when you are planning to build, reconstruct or renovate your home. If you are looking to get some cash to build, renovate or rehabilitate some real estate in order to obtain some income or get a profit then this type of loan will be the best option. You can obtain construction loans from brokers and bank lenders to finance all the building costs. There is a major difference between obtaining a normal loan or even a mortgage and getting a construction loan. Although, these differences aren’t very good. Depending on how much you are wanting to borrow, you might be able to use an unsecured personal loan.
An unsecured personal loan typically ranges to around £25,000. Thankfully, Simple Personal Loans offer loans up to £35,000 to give you a better chance of getting exactly what you want if it costs that extra mile. Unlike construction loans, with an unsecured personal loan, you are able to repay it over a period of up to 6 years. So you’ll repay your loan in smaller monthly instalments instead of one large chunk at the end of your fixed period. This tends to decrease the amount of stress that you will feel.
This is what you will need to get a construction loan
Large construction loans for expensive building projects need huge planning followed by a vetting deal before the broker or bank can approve the application. You will need to pass the following requirements so the lender can be assured that you will be able to keep up with the deal and the payments before and after the construction begin.
You need a construction team or a qualified builder
For a lender, bank, broker or any financial lending institution to give you some money for your project, you should have hired licensed, reputable builders beforehand. The only way to prove it is to provide some legal documentation to the bank with the information. You will also need to provide the past and present projects done by the builder as proof. The qualified builder should offer you some proof that they have built strong, safe and ensuring homes in the past.
A construction plan
There is no way a lender will offer you some amount of money without knowing what your plan is first. This is one of the most important requirements lenders will ask for before giving out a construction loan. Providing a detailed plan of the construction will increase the chances of getting the construction loan. The plans are normally called the blue book. It should contain information on the floor plans, the insulation you tend to use, the ceiling heights, and the cost of wood you will use and the timeline of the whole project.
One of the criteria used to gauge the construction loan amounts is the value of the property. This is why an appraisal is an important requirement for the loan. You should get a licensed and competent appraiser to give you an estimate of the value. Some lenders will have their own appraiser to give the estimate. They consider the plot of land and bluebook while making this estimate.
A large down payment
Just like a mortgage, you must put down a substantial down payment in order to receive the loan. the construction loan is perfect for real estate projects and lenders will need at least 20% in the down payment before they consider approving the application. The down payment is like an assurance that you are taking the project seriously. It shows you are not likely going to abandon the project even through difficulties.
The final words
Getting a construction loan is not easy, whether you are looking for a small short term loan or a long term larger loan, even when you meet most of the requirements above. When you have commitment, determination and connections with the right people it will make things a little easier.