Building your own home, planning its architecture and designing its interiors is a long and expensive process, but further, it’s a unique and fulfilling experience of life for everyone. After all, having a home in which you have engraved a part of yourself can bring a lot of joy personal sense of accomplishment. To achieve these all, you need a solid plan to build that work out the room you’ve always wanted or maybe that special little home office can be fulfilling and motivational. It’s difficult to convince a lender to loan you money for something that hasn’t been built yet, but there is a way to help you called “Hard Money Construction loan”.
What is Hard Money Construction Loan?
A hard money construction loan is typically a short-term loan (usually around a year) that’s supposed to cover the expenses of building a home. To get hard money construction loan, you’ll need a detailed construction plan along with a realistic budget while assuring the loaner that the project is a small risk. Usually, experienced constructors keep a sort of “blue book” that contains all the details of the project to acquire construction loan. It’s no secret that down payment plays a major factor in any loan. You can expect up to 20% to be added as down payment in the case of construction loans. The main reason why it is so, construction loans are viewed as high-risk investments in which the loaners want to make sure you see your project through.
Qualifying for a Hard Money Construction Loan
Lenders are often imposing strict qualifying requirements for a construction loan because they are lending money for something that is to be constructed, with the assumption that it will have a certain value when it is finished. If the builder does a poor job or if property values fall, then it could turn out a bad investment for lenders. They include the following provisions to protect themselves from this problematic outcome:
1. A Qualified Builder Must Be Involved. It’s important to find out a well-established building contractor with a good reputation for you. The reason for this is that going at it alone and planning to be in charge of everything can be viewed as a problem by the lenders because you have no experience of construction projects. If you can somehow present a detailed and convincing construction plan which demonstrates your skills and knowledge in the home-building business, then you might just get the loan.
2. Detailed Specifications For Your Project. The lenders need detailed specifications of your project including floor plans, as well as details about the materials that are going to be used in the home. Builders often put together a comprehensive list of all details (sometimes called the “blue book”); details generally include everything from ceiling heights to the type of home insulation to be used.
3. The Home Value Must Be Estimated by an Appraiser. The lender must have an appraiser to consider the blue book and specifications of the home, as well as the value of the land that the home is being built on. These calculations are then compared to other similar houses with similar locations, similar features, and similar size. These other houses are called “comps,” and an appraised value is determined based on the comps.
4. Down Payment. You will need to put minimum 20% down payment to obtain the construction loan. This ensures that you are invested in the project and won’t just walk away if things go wrong. This also protects the lender in case the house doesn’t turn out to be worth as much as they expected.
Building own home is an extremely gratifying experience, but if you are thinking of going through a home construction project, you’re suggested to be prepared a well-built project plan and get a well known qualified home builder first. Also, your budget will decide the fate of your project, so start saving up so you can cover the down payment.
Hard money construction loan is the right choice for you to build your dream home. Magna Capital Group, Inc provides hassle-free construction loan on attractive interest rates that make your affordable and easier on your pocket. We also provide customized repayment options to suit your needs. There is no hidden charges at Magna Capital Group, Inc.
You can apply online for hard money construction loan or call (310) 734-4044 or email at email@example.com.