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Finding Out About New Home Construction Loans

Jan 19, 2008
A contractor or building company that is in the business of building new homes may have several options when it comes to new home construction loans; after all, this is their business and their loans may be thought of as business loans rather than simply construction loans. They may have equity in their business or certain capital they can use as collateral, which makes it easier for them to be approved. They might also have an established relationship with a bank or lender for these loans. However, a private borrower may find that it's much harder for them to apply and be approved for new home construction loans, and there are some reasons for this.

One of the reasons that new home construction loans are so hidden from plain sight is because they are what's called "story loans," that is, the lender will want to know the story behind your request for the loan. Their approval is a bit more complicated than loans for cars, new homes themselves, and student loans. When you are looking to apply for new home construction loans, you may be asked some very detailed questions about your plans for the loan, what type of construction, how long it should last, what contractors you've hired, and so on. Is this home for yourself, or are you simply looking to sell afterward? Do you have buyers already lined up, and if not, what type of marketing or advertising are you doing? How long have you been in the new home construction business?

So if you're a builder or someone just interested in construction for your own private home or for investment purposes, where do you begin shopping for new home construction loans? Obviously your local bank may be your first stop. If you already have an account and an established line of credit, you may be well on your way to getting approved for the loan. Your bank may already have your information on what collateral you may use for your new home construction loans, as this is always a difficult issue. Building new homes is very different from a mortgage on an existing home, which itself is used as collateral. With new home construction loans, you need something else to use as collateral, and a long-standing relationship with your bank may help to verify what collateral you have.

And if you're just getting started in the home construction industry, chances are the bank knows some of the risks better than you do. They may be aware of how many others have come before you that have tried and been unsuccessful. Giving out new home constructions loans for those who are new to the industry brings about some special risks since they may be more prone to giving up once they face some obstacles. This is one of the reasons they ask so many questions about your business plan, buyers, and things such as these.

Banks and lenders need to know many details about the new project when considering new home construction loans. They may ask for details about the land, the blueprints, the building materials, custom cabinetry and appliances, and anything else that will have a bearing on the home's value. This is because the loan turns into a mortgage when the construction is complete, and of course the bank needs to know that they are not lending too much money that will not be returned in equity or the value of the home in case the homeowner defaults and there needs to be a foreclosure. New home construction loans are not necessarily more difficult to obtain than regular mortgages, but do require many more details than standard home loans.

One you understand the bank's reasons for being concerned about the security of their new home construction loans, you'll better understand why they ask so many invasive questions. Be prepared to present all your information in a professional way, and then you'll be more likely to be approved for any of those new home construction loans.

With a little bit of shopping and comparing, you're sure to find someone that can approve your new home construction loans, whether it's online or in person.
About the Author
Dont forget to download a free copy of Construction loans inside secrets. 15 things you should know before you even think about applying for a construction loan.
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