Are you considering building a house in Pennsylvania? It’s an exciting venture and one that comes with a lot of steps to complete along the way. One of the first, and probably most important, is getting approved for a loan that can pay for the construction of your house. But don’t worry: it doesn’t have to be as complicated or stressful as it might sound!
With the proper preparation and know-how, you’ll soon know how to get a loan to build a house, which is needed to make your dreams come true. It’s the ideal option for those who don’t have the cash upfront but can afford to pay the monthly installments over a set period. With that said, start securing that load to achieve your house goals.
What is a Construction Loan?
A construction loan is a type of loan that you can use to build your dream home. Mortgage lenders are an excellent option for purchasing an existing home. But they’re far more hesitant about something that doesn’t exist yet, especially if you’re using the money to construct a new one.
If you can’t find any luck with mortgage lenders, consider a construction loan. It’s also known as a construction-to-permanent loan since it can be turned into a standard mortgage. Usually, it has a maximum of one year, and it covers the construction, labor, materials, and other costs of your dream house.
Once you start the construction, the lender will release the loan to you gradually. At the same time, most will only ask you to pay the interest during the progression of the construction. It keeps your payments low without reducing the main loan balance.
You should also know that the interest rates for construction loans are higher than conventional mortgage loans. After the construction of your house is done, you can choose to refinance the construction loan and turn it into a mortgage or get a new one to pay your current loan off.
How to Acquire a Construction Loan
The process can be daunting and stressful if you’re wondering how to get a loan to build your own house. But it’s about being strategic and having the correct information before applying.
Follow these steps to help make it easier:
- Meet with a lender to get pre-approved: It’s essential to calculate the size of your construction loan. Remember to be realistic and only borrow what you can afford to pay back.
- Secure your desired location: You should consider buying land separately from your construction loan. You can buy the land upfront or secure another type of loan to pay for the land. It’s called a land loan, and getting approved for it is more complex since there’s no collateral.
- Visit home communities and builders within your price range: You should always opt to work with a professional builder instead of DIY-ing your way. Most lenders want to ensure you have a qualified builder before approving your loan.
Ensure You Have Strong Credit Before Considering a Construction Loan
This type of loan is considered high-risk, and you will need strong credit to even be considered. Most of the time, the lenders will ask for a credit score of 620 and above, and you have to give 20% or more down payment.
Your debt-to-income ratio is another consideration, which is when they look at your income and determine if you have enough to cover the monthly debt payments. Commonly, they will like to see a DTI of 43% or lower. The exact amount for your down payment will be determined after the lender calculates the total cost of the land and planned construction.
When Do Payments for Mortgage Start on a New Build?
Once approved for the loan and all the construction is done, the lender will inspect your home. After that, they can convert the construction loan into a standard home loan.
As mentioned, lenders will allow you to interest only during construction, making the payments affordable. After that, you can pay the standard mortgage if you turn it into a mortgage loan. It’s all about knowing how to get a construction loan to build a house.
Are There Other Sources for New Construction?
Another way how to get a loan to build a house in PA is a bridge loan, which is a loan you can use to have your new home built while you’re waiting for your current one to sell. It only works if you have equity in your new home.
It can be expensive and risky, especially since you’re waiting and planning for your home to sell. But it can get you through if you’re pressed for time. Another option is to sell your new home and temporarily rent while your new home is being built. It gives you the freedom to use the equity toward your new property.
Choosing the Right Loan to Achieve the House of Your Dreams
If you can afford to pay the monthly payments of a construction loan, then it’s an ideal option. You must ensure you meet all the requirements while considering all factors before deciding.
And when it comes to builders, choose professionals who are insured and have a license, such as Parry Home Builders. Our expert services allow us to build your home in no time while meeting your specifications and requirements.
Don’t hesitate to contact us today, especially if you’re considering us as your builder for your next project. We’ll help you throughout the process while making sure everything runs smoothly.