If you’re in the process of building your dream home, a new home construction loan may be just what you need. The rules around securing this type of loan aren’t the same as those for buying a house that already stands, so you’ll need to do some research and get all the details straightened out before moving forward with your plans.
How do construction loans work ?
The good news is that there are a few lenders out there that offer this type of loan. The most significant ones are Fannie Mae, Freddie Mac and private mortgage insurers like PMM. But you may also find local lenders that provide this financing as well.
As with any mortgage loan, a new home construction loan will require that you submit a variety of financial information to qualify for the funding. This will include a credit report, income statements and property tax documents. You’ll also need to provide a detailed blueprint of the home that you’re planning to build and a complete list of costs for materials and labor. Lenders will also need to know what you’re planning to do with the land if it’s included in the loan, and will need a detailed survey of the land if the property isn’t fully cleared.
Unlike conventional mortgages, new home construction loans are typically disbursed in stages based on the progress of the project. This is known as a “draw” system, and the lender will inspect the work before they release each round of funds. This is to protect them in case the project gets off track or something else goes wrong during the construction phase.