Constructing a house from square one can be an excellent opportunity to give a personal touch to your new space. The construction process is an expensive prospect, just like purchasing a house. Fortunately, construction loans offer the necessary funds to buy land and finance labor and materials required to construct a new home.
If you are banking on a construction loan in Florida and have less than a splendid credit score, Benworth Capital is a great option.
What is a construction loan?
A construction loan is a temporary financing that’s granted to construct homes or other real estate properties. It lets property owners borrow money to build a house from square one. A construction loan may be used for:
- Buying building materials
- Buying land
- Financing contractors, architects, and labor
- Funding building permits and environmental inspections
Types of Construction Loans
There are different types of construction loans provided to borrowers by regular or government-supported lenders. They are:
1. Construction-to-Permanent Loans
The loans are commonly known as a One-Time Close construction loans. It features a single application and a closing date for the loan. Here, the lender will turn a construction loan into a permanent mortgage following the finalization of the construction project.
2. Construction Only Mortgages
The loan features two loan applications and two closing dates. It is otherwise known as a Two-close construction loan. To the debtor, there’s a raised risk as there is a possibility that the second application could be rejected. The danger occurs significantly when the debtor’s financial situation has changed after the first closing date.
3. Renovation Construction Loans
Renovation loans, otherwise known as FHA 203(k) loans, are ideal for funding a house remodeling project. They can be used in making major repairs or upgrades.
How do construction loans work?
Construction loans differ from traditional loans with regard to how funds are given out and structured. Construction loans are disbursed in phases relating to different stages of the construction process while traditional loans are disbursed in bulk at once. The phases may include:
- Acquiring permits and completing the foundation
- The final consummation of the construction
Qualifications of construction loans in Florida
Construction loans require a great deal of preparation and vetting ahead of the cash delivery. In essence, you are required to have the following qualifications to reassure the lender that you have everything in order before the construction commences. To be qualified for a construction loan, you must have the following:
1. You must have hired a reputable, licensed builder with the documentation to prove it.
2. A detailed description of every aspect of the construction plan to provide to the lender.
3. An appraisal from a licensed appraiser
4. A sizable down payment that’s ready
5. Good credit score
6. A low debt-to-income ratio
The Benefits of Getting a Hard Money Construction Loan
Hard money loans are specific financing tools that are used by a majority of people. Before applying for this loan, a potential borrower should know the benefits of acquiring hard money construction loans.
1. Hard money loans are sanctioned and funded quickly-within 24 hours if needed.
2. The hard money lenders have few upfront requirements meaning there’s a higher possibility of loan approval.
3. Any credit score can guarantee approval of a hard money construction loan
4. Hard money loans have shorter reimbursement terms of 12 months, with extensions in some cases.
5. There are no prepayment penalties associated with the hard money construction loans.
In conclusion, construction loans come in all sizes and shapes. Acquiring a construction loan is not likely to be a leisurely pursuit. It always boils down to your dedication to see the finalization of the construction of your house. Reach out to us when you’re ready to get started!