The acquisition of land and the construction of a new house can be quite tasking and difficult, and the process is not the same as buying an existing house. Though the procedures look complicated, this article will give you concise clarity on all it entails, so you don’t discourage yourself or put your dream on hold unnecessarily. Let’s see How To Finance Buying Land and Building a House?
What Does It Mean To Finance Buying Land or Building A Home?
This is what people call property loans, lot or land loans I.e. the funds you get for the purchase of land or building of a house, either for residence or for business use. So, banks give these loans specifically to borrowers who want to do either of the above. So, when you would rather prefer to buy land and build your dream home, a construction loan is what you need.
What Is A Construction Loan?
What do you require for the actual building of your house? It is the same thing you need to pay for the cost of building the house. They are short-term loans that need to be paid off in the space of two years.
How Does Construction Loan Work?
It is disbursed in phases as your home is built over time. The lender has his or her plan for the construction and won’t give a whopping sum of money for the work at once.
Sometimes, if the borrower finds it difficult to meet up with the payment in a short time, they can apply for a home mortgage to pay off the loan. It can as well be rolled into a traditional home loan. This is only possible if that is the agreement with your lender from the beginning.
Types Of Construction Loans
Here are a few details you need to know to make the right decision in choosing the best type of loan for your needs and situation.
VA Construction Loan:
This allows for little or no down payment. Those who qualify for veteran administration construction loans can buy land and build their dream home without having to pay a down payment. Here, you will get a better interest rate than that of some traditional lenders. This is a type of loan that is good enough to meet your needs as a qualified veteran with an eligibility certificate.
Traditional Lenders:
This loan has restrictions on the type of builders you can use. This can be more expensive than traditional mortgages. Also, in traditional lenders, only interest payments are required during construction.
The USDA Guaranteed Loan:
The U.S. Department of Agriculture guaranteed loans are usually for those who live in places considered rural. They are easy to get and a down payment might not be necessary. However, income requirements are needed to qualify. This is to help those people with moderate or low income and relatively high-income earners who don’t qualify most times.
FHA Construction Loan:
This is greatly recommended for buying land and building a house because it allows for construction costs to be covered in a single mortgage. A 3-5% down payment is possible, including a debt-to-income ratio of up to 50% with lower credit score requirements.
Buying A teardown
This is good if you are having challenges with getting a befitting loan for your land and the construction of your dream home. Here, you buy an existing house, demolish it and build the home of your choice. They are short-term loans also.
Home Equity Loan
This is a loan people apply for if they already own a home. They can end up selling their first home to pay if they are unable to meet up with their monthly payments.
Conclusion
With the necessary information provided to finance buying land and building a home, be sure to make the right decision having considered your qualifications and best loans to bring to life your dreams and goals.
Frequently Asked Questions (FAQs)
Q. Is It Wise To Buy Land And Build A House?
A. You can either buy an existing house or build the home of your choice, depending on your financial ability and what can bring your goals alive.
Q. How Do I Qualify For A Construction Loan?
A. Every loan comes with different qualifying criteria. In contrast to the traditional mortgage loans where you probably don’t need more than a 3%down payment, the requirements for a construction loan will be from 20% to 25% with a credit score of at least 620.
Q. Which Loan Is Considered The Best For A New Construction?
A. When you are looking for a loan that will best serve your preferences, contact your contractor for proper guidance, put together the cost of your construction from the beginning to the end and if it’s something a single mortgage can cover, the best option to go for should be an FHA Construction loan.
