Finance

Construction Loans in Texas: Requirements, Lenders & More to Know

Is a construction loan too difficult to get? How do you go through the loan application? Read the article to find out everything!

 

 

As the name suggests, construction loans are a short-term and high-interest rate financing option to cover the costs of building a home. Here’s a catch – the contractor gets the loan and not the borrower. When the construction work is over, the home construction loans turn into permanent home loans. Since the amount is paid out at the time of building, it may be confusing for many borrowers to understand. 

The construction loans need the interest payment when the building process goes on. Upon the completion of the loan, it becomes a standard loan. So, the mortgage is solely used for building a home. Now, you may wonder how the construction loans Texas differ from conventional loans. The basic difference is that the former pays out for building a home from scratch, and the latter helps you purchase an existing home. In construction loans, unpredicted expenses are common. This may push the overall costs to shoot up.

Nevertheless, many borrowers perceive the construction loan as complex. Considering the risks of streamlining a new home project, it is a bit difficult. Moreover, the high-interest rates can make the process more difficult. Lenders have multiple options to finance borrowers’ dreams, so it is still attainable. In this article, we mention everything you need to know about construction loans in Texas.

 How do You Get a Construction Loan?

With all that said, you might be thinking the mortgage has difficult requirements to fulfill. Similar to other programs, construction loans have standard guidelines. If you study the loan requirements beforehand, you can have it easy-going. The process often seems to be more rigorous than traditional mortgages. But this should not discourage you.  

In order to get approved for the construction loans Texas, here are a few things to remember.

  • Good Credit – Well, construction loans require excellent credit. Lenders may not qualify your application if it’s less than 680. The more, the better – try to make sure you have a credit score around 720 or above. If you want to build a home, it’s best to take out some time and work on credit scores.
  • Contractor Approval – The contractor receives the loan, so an approval letter from the GC is imperative. You need to mention the builder’s insurance, financial situation, and other relevant information. It is important to include a brief of the responsibilities every party has.
  • Financial Ability – Besides having excellent credit, you need to prove your financial ability. It is important to show that you have already paid dues. Lenders ask for bank statements and documents to verify annual income.

Work with the Right Construction Lender

When finding a construction lender, ask closing costs, interest rates, and equity. It is natural to feel overwhelmed. And many borrowers make the mistake of settling with the one they see at first. It is never good to make a decision in a hurry. So, research, work on your application and compare costs before starting the work.

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