Do you own a piece of land and are planning to build a house? Have you got the blueprints ready but are lacking in funds? Then maybe a construction loan is just what you need. This article will explain the requirements that you need to fulfill, in order to apply for one.
People are increasingly applying for loans throughout the United States. Home and auto loans are the ones which are applied for the most. Having mentioned home loans, there has been a considerable amount of increase in the applications for construction loans in these last few years. The process to get this type of a loan is not an easy one, as there are a number of requirements which are supposed to be fulfilled by the applicant. If you are planning to apply for one, check out the following information regarding the required documents for the application.
Taxing the Income
Akin to most real estate loans, there is a stringent documentation process that needs to be followed while applying for a construction loan. Those who have a regular income with tax deductions are primarily required to submit a W2, which is a US federal tax form issued by employers, that states the income of the employee in a year. The applicant is also required to submit six consecutive paychecks with deductions, three years of tax returns, and bank statements for the last six months. Self-employed borrowers would need to submit three years of schedule Cs (sole proprietors) or three years of S-corp or corporate returns.
Land title is one of the most common ways to prove your land ownership. In a few cases, the lenders complete a loan mortgage, which involves buying a parcel of land.
The Blue Print
The borrower has to get an estimate on the blueprint from a contractor, and a breakdown of the construction plan, as to what, when, how, and so on. The breakdown plan should also include the approximate completion.
Lenders always like to make sure that the contractor can be trusted. Hence, they need his signature on the project write-up, along with his credit history, and a copy of his license for operating in that specific state. This is a standard practice, and contractors normally provide the necessary documents.
Considering that you have already selected a suitable bank for financing, the first step is to get your loan pre-approved. During this step, you might need to explain to the bank if your house would be owner occupied, if so, then for how long, or are you just building for investment purposes. All these factors will have an impact on your financing options.
Always pay attention to the fluctuating rate of interest, and where you want to lock your rate. It is important to know that the rate would not change once the construction loan is converted to a mortgage.
Sign a contract with the builder/contractor. The contract has to be crystal clear and unambiguous. It should mention all the possible contingencies, and the amount quoted by the builder. If necessary, get a construction liability insurance.
Finally, ensure that all the requirements have been fulfilled, and that the application is properly structured. In case of any skepticism or problems regarding clarity, it is always a good idea to speak to your financial adviser.