Do take the time to get several quotes from the home loan lender before starting the formal application process. Compare interest rates, terms and available funds to borrow from several lenders to determine which offers the best option and the lowest costs.
A home loan to build a house is often called a construction loan. This type of loan is based on the value of the finished building and is structured in such a way that the builder receives payments throughout the construction process. Through inspections and appraisals, the lender is able to approve the construction process and secure the loan for the homeowner while paying the builder as agreed. Since this type of home loan is a bit different than traditional home loans, there are a few areas you need to understand before getting this type of loan.
Get prequalified for a home loan by applying for a construction loan with your mortgage lender. The lender will prequalify you by looking at W-2s, employer records, paycheck stubs and credit reports to verify that you qualify for the loan. The lender will let you know how much of a loan you may obtain.
Find a construction company or builder to design a home based on the amount of money able to be borrowed from the lender. Most lenders will require an approval process for the builders to ensure they are reputable before allowing them to proceed with the home construction.
Obtain lender approval of final plans of the home, including full cost estimations and proposals provided by the builder. The builder will design a proposal for the lender, outlining costs, time lines, and a schedule of draws, or payments to be made over the course of the building process to the builder.
Sign documentation and establish the home loan to build a house with the lender after final approval of the construction plans has been made by the lender. This secures the home loan and gets the building started.
Regularly communicate with the builder to work out any problems during construction. Handle inspection and appraisals required by the builder, if needed, throughout the process and at the final stage in the home-building process.
Finalize the home loan with the lender after the lender has conducted the final inspection and appraisal process with the construction company and builder. This establishes the home loan, and the borrower (homeowner) is required to begin making payments on the home loan.