There are numerous methods of getting a loan for new homes construction, as opposed to conventional financing. One way is through private loans from banks and other financial institutions, another is through home equity loans from lenders. Another option for obtaining financing for a new home is through FHA loans, or Federal Housing Administration loans. The latter two options have various benefits and drawbacks, and the choice will depend on your specific situation.
Private loans for new home’s construction will require you to provide a personal guarantee or put up some collateral, such as your house. This type of financing option has one major benefit: a bank will usually be willing to issue a loan larger than what their own property value offers because they are at least guaranteed that they will recoup at least some of their investment even if the borrower fails to make payments. However, this type of loan also comes with one major disadvantage. A bank that issues a private loan for a new home’s construction will typically require the borrower to have either a substantial down payment or liquid cash available to ensure that the loan goes into effect. In some cases, there may even be a prepayment penalty.
Home equity loans, on the other hand, are a popular and common method of obtaining financing for new home’s construction. In general, a homeowner is given a lump sum of money in order to fund the construction costs of the new home. The amount of money that a borrower can borrow will largely be determined by their credit history, income, and credit rating, although there are no credit qualifications for the borrower.
A third option for obtaining a loan for the new home’s construction is through FHA loans. These loans are offered by the Federal Housing Administration. As mentioned above, FHA loans require no down payment or other financial requirements on the part of the borrower. The federal government finances the cost of new homes construction. Once approved, the borrower takes on the responsibility of researching and applying for the best deal possible. After finding a reliable lender and determining that the funds will be able to cover the costs of the home, the borrower signs the agreement and is now legally responsible for making all of the required payments.
The only disadvantage to these loans is the possibility of default. FHA loans cannot be used to finance new homes construction if the borrower misses one single payment in the past seven years. If a payment is missed and the borrower re-applies and receives approval, however, this new loan will be granted regardless of previous forgetfulness.
A good idea for all of those interested in learning how to get a loan for a new home’s construction is to begin by searching the Internet. A variety of lenders exist with online websites. Some of the more popular lenders are Bank Of America, Chase Bank, Wells Fargo and many others.