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New Home Construction Loans 101

When you are ready to build your first home or that dream home that you have been wanting for so long you will probably wind up needing help with the financial part of the building process. The funding for your new home is available through new home construction loans. Both owners and builders can use construction loans, although some lenders are a bit hesitant about lending to first time homebuilders.

Construction loans are a homebuilders dream funding. This loan may or may not include the cost of the land used to build your home on. These loans set up a line of credit that will pay suppliers and sub contractors as the building process goes along. This will make both workers happy because they do not have to wait until the completion of the home to be paid for their services. A new home construction loan will be set up in monthly stages or into stages where specific portions of the building process are finished. During these stages, a construction draw will be organized that will state the amount of funds that were used during that specific time period. The construction draw is then given to the lender so that payment to the building workers can be executed. A residential mortgage is required before you apply for a construction loan and must be presented to the lender you choose before the


building process begins.

A stated income construction loan is a loan in which the funding will be provided to help you build the home of your dreams. This type of loan does not require any verification of your income. With stated income construction loans you are either having trouble verifying your income or you choose to not submit that information to the lender. Either scenario is acceptable with this type of construction loan. An individual who is self employed is a great example of a borrower of a stated income construction loan. These loans work just like other construction loans and your assets and employment will both be verified. The interest rate of these loans may be higher than that of other new home construction loans because of the risk involved with borrowers whose income is not verified. The down payment for such a loan may also be higher than that of a traditional construction loan. The advantage of a stated income loan, besides the no verification of income, is that these loans are approved at a faster rate than other new home construction loans.

About the author:

Natalie Aranda is a freelance writer. She writes about business, finance, marketing and customer service.