Part 2: Unlock the Secrets of Construction Loans: A Comprehensive Guide to Building Your Dream Home
Part 2 of the Video Series: Unlock the Secrets of Construction Loans: A Comprehensive Guide to Building Your Dream Home
In Part 1 of the video series, Aldo LeVain with The LeVain Real Estate team at Windermere and Dylan Langei discussed that Construction loans are financing options for those who want to build their own home. Before applying, it's important to be aware of potential delays and cost overruns due to material and labor shortages in the construction industry, and to determine if you are financially eligible by speaking with a lender.
Key Take Aways from Part 1:
- A construction loan is a financing option for building a home and not everyone qill qualify for it.
- Before applying for a construction loan, it's important to know if you are financially eligible and prepared for potential delays and cost overruns due to material and labor shortages in the construction industry.
- If you have a passion for building homes and are prepared for the process, a construction loan may be a good option for you.
In Part 2 we go over:
Step 1: Pre-Approval The first step in securing a construction loan is pre-approval, where the lender will collect your credit, income, and asset documentation to determine your credit score, debts, income, and assets. Your lender will then preapprove you for a loan based on this information.
Step 2: Equity from the Lot If you already own the lot, you can use equity from the lot towards your down payment. For example, if you purchased a $1 million lot and put a 10% down payment, you have $100,000 of equity in just that portion.
Step 3: Add in Hard and Soft Costs When calculating the acquisition cost, remember to add in the hard costs (construction costs) and the soft costs (permits, fees, etc.). Your total acquisition cost will be the sum of the lot price and the hard and soft costs.
Step 4: Collecting Documentation Once you have pre-approval, you'll need to complete a full construction packet. This includes the following documents:
- A general contractor who is licensed and bonded
- A builder resume that verifies the contractor has been in business for at least three years
- Check for any outstanding liens against the builder
- A full budget that itemizes the costs for framing, foundation, dirt work, etc.
Step 5: Construction Review The lender will run the construction review process alongside the credit and income review process. This includes reviewing the construction budget, builder resume, and credit profile. Once the lender has received all necessary documentation, they'll provide final approval for the construction loan.
Building your dream home requires careful planning and preparation. By following these steps and working with a professional lender, you'll be one step closer to realizing your dream.
Stay Tuned for Part 3