In 2021, over 1.6 million new homes were built throughout the US. Building a new home can be a fun and exciting experience. You get to select the layout and the amenities.
Despite the thrill of building a new home, giving your family a new home can also be stressful. You must deal with all home loan applications and mortgage requirements.
Are you currently in the middle of building a new home? Are you wondering if there are any construction loan application mistakes you should know about? If so, keep reading to find out!
1. Not Understanding the Process
Construction loans are very different from traditional loans, so educating yourself and avoiding potential pitfalls is important. Another big mistake is failing to plan for the future. Construction loans can be great for short-term financing, but you need to plan how to repay the loan once the project is complete.
Be sure to work with a reputable lender who can guide you through the process and answer any of your questions. Construction loan providers like spec home construction loans will see to it that your project is going to be completed without any problems.
2. Not Having All Your Ducks in a Row
There are a lot of moving parts when it comes to funding a construction project, and if any one of them is not in order, it can derail the entire loan application process.
Before you apply for a construction loan, make sure you have your land purchase contract, construction plans, and budget lined up. Your lender will need to see all these to decide on your loan.
3. Failure to Negotiate
Not negotiating can leave you at the mercy of the lender’s terms, which may not be as favorable as you’d like. Be sure to discuss the interest rate, loan amount, repayment schedule, and other pertinent details with the lender before applying for the loan.
Doing so will help ensure that you’re on the same page from the start and help avoid any unpleasant surprises down the road.
4. Not Being Realistic About Your Budget
When putting together your construction budget, don’t forget to factor in permit fees, utility hookups, and other incidentals. Your lender must see a realistic and achievable budget to approve your loan.
Another mistake is failing to account for the loan’s interest. When you’re drawing up your construction budget, ensure you include a line item for the interest on your loan. It can add up and strain your budget if you’re unprepared for it.
5. Falling Behind on Payments
Construction loans have payments based on the work completed, so if you fall behind, you could end up owing a lot of money.
It’s important to stay up-to-date on your payments and ensure you’re budgeting correctly.
Be Aware of Construction Loan Application Mistakes to Get the Right Funding
When applying for a construction loan, avoid common mistakes like not having a budget, not having a detailed plan, not having an experienced contractor, and not getting bids from multiple lenders.
By taking the time to research and plan ahead, you can avoid these construction loan application mistakes and get the right loan for you.
The loan application process for a construction project can have many complications. Visit our blog if you need more tips and advice!