Unlike other loans Home construction financing is different with respect to terms and conditions. These loans are usually short-term and they have higher interest rates. This loan meets the builder’s requirements which are associated with the construction.

Typically home construction financing is divided into two parts. The first part takes care of the payment to the suppliers and the contractors who are constructing the house and second part is the residential mortgage which helps you to pay off the construction line .

Requirements

The following are some of requirements for the home construction financing

1) Decide the construction budget needed.

2) Often 20% is usually required as down payment.

3) Planning of the budget is needed for every phase of the construction.

4) Proper Documentation including verification of employment ,if self employed then necessary details of the income , savings , investments if required tax details as well.

5) The purchase contract or the title of the construction site.

Home construction financing is a little different than the usual mortgage financing. Home construction loans are usually short-term loans and carry high interest rates. If you are working with a custom lender to build your house then this loan pays of the builder who meets rest all the requirements associated with the construction.

The home construction financing is divided into two parts. The first is the construction line that would help you pay off the sub-contactors and suppliers that are helping you out with the construction and the second part is the residential mortgage that would help you paying off the construction line.

Requirements for home construction financing

When you wish to take a home construction financing you need to sort out the following things:

• Start-up Construction Budget

• Down Payment: Usually a down payment of 20% or more is needed.

• Planned Budget: You should have a plan for the construction at very stage.

• Documentation: This will include verification of employment (e.g. , W-2s, pay stubs), or if self-employed, documentation of income, savings and investment account statements. You will also need to provide the purchase contract or title to the construction site. How is home construction financing disbursed

When you take home construction financing then you would first ask the lender to set up a construction line. The lender releases small amount of money called as draws based on the progress of the construction. Usually the draws are released every 30-60 days when the builder puts a request to pay the sub-contractors.

Lenders usually have a fixed number of draws in a period of time but it is advised that you should not underestimate the cost for the first stage. If you request the lender for more draws than the allowed number the lender can release the extra draws by charging you a minimal fees. On the other hand keep in mind that the construction line has a higher interest than the residential mortgage. Once the construction is over then you would have to apply for a residential mortgage that would pay off the construction line. The residential mortgage is similar to any other mortgage loan.

There are a number of lenders that give out the construction line and residential mortgage as one loan called as the Construction/Perm loan. This type of loan is directly dispersed by the lender to the borrower and serves as a construction line till the construction work is going on and then serves as a permanent mortgage.