There is a reason why many homeowners purchase existing homes or go with a builder in a subdivision. The process to getting approved for construction loans in East Central Illinois and West Central Indiana, is lengthy and difficult. The good news is that you can get easily approved for this type of loan as long as you meet all of the criteria listed next.
You Need a Qualified Builder
In order to get a construction loan, you'll have to be involved with a qualified builder or general contractor who has experience building a home from the ground up. Nobody is arguing the fact that you may be able to do this yourself, but a bank is not going to loan you any money to try it out. If you don't have any proven record in the building industry, then you should hire a builder or contractor for your project.
The good news is that hiring the right builder can actually save you money, because they have the right contacts with suppliers for materials, and they may already have access to a reliable crew.
Your Lender Wants Details
It's not enough to apply for a construction loan of a 3-bedroom home. Your lender is going to want to see a lot more details. They'll want to see the blueprints, floor plans, and the list of materials that are going to be used in your home. They'll want to know how tall your ceilings are and what type of insulation material you will be using. Fortunately, you'll get this covered with the first step, as your builder or general contractor will be the one to provide you with all of that information.
You'll Need an Appraisal
It can be difficult to appraise a home that hasn't been built yet, but it has to be done in order to get the loan. The appraiser will look at the value of your land, all of the details about the type of home you're building, and compare it to similar homes in the area. The more information the appraiser has, the better. Of course, at the end of the construction, there will be another appraisal to convert the construction loan into a regular home loan.
You'll Need a Down Payment
Many builders of subdivisions have the ability to offer you attractive financing terms with a small or even zero down payment. But when you're dealing with a construction loan for your personal residence, you can expect to come up with a rather sizable down payment. In fact, 15% is the minimum amount required for a construction loan. Some lenders might even ask you for 25%. Plus, they won't loan above the appraised value of the home, so if you want to build a fancier home than the appraisal can support, you might have to come up with the difference.
Now that you know what to expect from your lender, it's time to get all of your ducks in a row. It's a good idea to discuss your plans with your lender before you invest any money of your own. If you plan to include the property in the construction loan, this is something you should discuss with your lender ahead of time.