Construction loans and improvement loans are two different types of loan products that can be used to finance your projects. Construction loans are usually used to fund the cost of building a new house or other structure, while improvement loans are usually used to remodel, repair, or improve an existing structure you own. Because lenders tend to view construction loans as more risky than improvement loans simply because a structure is not yet in place; the lender may decide to sit on the loan, potentially delaying or going over budget. Both types of loans come with different rates, terms, and conditions. Before applying for either type of loan it is important to understand how they work.
Dunning and Nash say that construction loan lenders typically rely on two factors to determine a loan’s eligibility. The first factor is whether or not the borrowers have good credit. Poor credit scores mean potential lenders may pass on the opportunity to finance your project, which can hinder the chance of building your dream house. However, if you think you will be able to secure a construction loan with good credit, construction loan lenders may still offer it. Keep in mind that even if you have poor credit, you can still qualify for a loan, as some lenders specialize in those with bad credit.
Another factor considered by construction loan lenders is your ability to pay a monthly payment. If you have a history of financial difficulties this can negatively impact your chances of securing a loan, but if you have done business with the same lenders in the past then your credit history should not be a factor in your decision. Ask construction loan lenders about their policies on paying loans, whether they accept bad credit borrowers, and what they will do if you cannot pay your obligation in full each month. Some lenders may even allow you to extend the term of your short-term loan, which can help you continue constructing your project while paying down your debt.
Good credit is essential to finding the right construction loan lenders. To find the best construction loan lenders, it is essential to shop around and compare loan programs from a variety of lenders. If you do not have access to enough information, then the best option is to use a reputable online lender. Using a lender with a bad reputation may mean choosing a company with terrible customer service, high interest rates, and other problems. To avoid going this route, go through the application process with a few companies and get referrals from people you know and trust. Ask friends and family if they have had success using a certain lender.
When you start looking for a construction loan, consider your FMC rating. The FMC is the industry term for Fair Market Value, and it is the standard used to determine what interest rates and loan programs a lender will offer. If you have a good FMC rating, you should have no problem getting competitive loan offers. If your credit is less than stellar, you will still be able to get competitive interest rates and terms. A mortgage company will consider the value of a property in a variety of ways, including the area in which it is located and the price of comparable homes. Your FMC will factor heavily into any offer made to you.
Construction loan interest rates vary depending on your lender’s guidelines and market conditions. If you can qualify for a construction loan, you may be able to lower your interest rates by taking some specific steps. For example, you may be able to reduce the amount of money needed to purchase the property, lower the number of months required to repay the loan, or take out a line of credit. Some lenders may require additional fees, such as appraisals, inspection reports, appraisals, insurance and other collateral or co-signers before offering you a loan.
A great way to find construction loan options that are right for you is to obtain a copy of your credit score. Your credit score will tell you if you are a good candidate for a construction loan, and it can also help you negotiate a better interest rate. You can get a free copy of your credit score from one of the three major credit reporting agencies – Equifax, Experian or TransUnion – once you have signed up for an account. You can order a free copy of your credit report at any time during the year, although most reports are available immediately upon receipt. Ordering your credit score online has never been easier.
Construction loans are offered by nearly all lenders. The process of securing a loan can take a few days or weeks, depending on the amount of information you need to provide. Lenders have different guidelines for what they look for in a construction loan. In general, they want to see that you are able to repay the loan as agreed and that you have the means to repay it. In addition, they want to see that your construction project is something the local community needs and that you will create jobs for locals when the construction is complete.