With spring right around the corner, many people are preparing to start projects as the frost comes out of the ground. We are often asked what is needed for a construction loan, and what the process is.
A construction loan is a loan taken by an individual to finance the construction of a home and other associated cost, such as the land, labor, materials, and services necessary. There are multiple different types of construction loans available to consumers depending on their needs. Below are a few items a financial institution may require as you apply for financing:
- Signed offer to purchase on the lot or the deed for the lot you currently own and plan to build on
- Breakdown of materials & costs along with a detailed plan
- Signed contract with your builder
The timeframe to obtain the items above will depend on how many revisions are needed on the plans due to expectations around cost & design, along with the overall scope of the build. Typically, it will take 1-3 months to define overall costs with your builder.
Once these items are obtained, a third-party appraisal can be ordered on the project dictating the value to be utilized for financing going forward. Title work can also be ordered on the land at this time as well. I strongly recommend having a discussion with your lender to discuss what you can afford based on your monthly debt & income structure. This will help align expectations while you develop your build plans.