How to Finance a Home Construction
Owning your own house is not easy and even if you have the land for it, erecting the building of your dreams can be extremely hard, even more so than purchasing a pre-built house. However, if you are bent upon having your own house constructed from the base up, you will need to arrange the finances. If you don’t have the money upfront, you will need to find alternate ways to finance your home construction, and this article will show you how.
Get a construction Loan
Most home builders apply for construction loans in order to finance their build. However, qualifying for these loans is not easy and majorly depends on your credit history. You will need to contact your bank or mortgage lender to check whether they offer construction loans – even if they do not, they can recommend those who do.
You will also need to contact an experienced builder and ask for an assessment of the project. The builder will help you with estimates, both in terms of finances and time required for completion. You will need to have every detail about the project, because the lender will be asking you every possible question related to it. Moreover, you might be required to balance the debt-to-income ratio before a bank allows you to borrow money for your construction. Construction loans are often short-term, which means if you drag the repayment, the interest rate will severely bog you down. It is recommended that you take a construction loan once everything else is in order and you only need the finances to begin the project.
Use your home equity line
Given how hard it can be to acquire the finances for your construction project, you may want to look into ways other than construction loans. If you own a property, you can use your equity in it to finance the construction of another home. The finances you can raise will depend on the equity you will be using and the fact that only a certain percentage of your equity will be considered for your loan. However, this is only feasible if you have a strong financial base, if not, you will risk losing both the properties in case you fail to make payments.
Try turnkey financing
If the above mentioned methods fail to produce the desired results, you can work directly with a building contractor, who will arrange the funding on his own and construct your house. If you can find a willing contractor, this option is less risky but you will need to be particular about the terms of your agreement since the contractor will be using his/her own finances to do your work.
