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NEW CONSTRUCTION

For current rates on the following loan programs, please contact your local office today!

Construction loans that are made to the consumer for the purpose of building a new home. It is a short-term loan that converts to a permanent loan once the construction is completed. Construction loans are great for the consumer who already owns land; the land can often be used as collateral for the loan.

Borrower's Ability to Repay Loan

There are several factors that the lender will look at when considering an application for a construction loan. The first is the ability of the borrower to repay the loan. During the construction phase, money is disbursed in what are called "draws." Which are based on the stage of construction completed at certain intervals. The borrower is charged interest based on the amount drawn. In many cases, the borrower is required to set aside a certain amount of money called an interest reserve. Monthly payments are made from this account until the project is completed.

The borrower will have to show that he will be able to repay the loan once the full amount has been disbursed. The lender will want to see proof of income and the amount of any other outstanding debt. These two amounts will be compared in the debt-to-income ratio.

Credit Score and Cash Reserve Requirements

Credit score and cash reserves will also be considered. Credit score requirements will vary depending on the amount of the loan. The higher the loan amount, the higher the credit score will need to be.

Construction loans are made on a project that has not yet been completed, so the lender bases much of the loan qualification criteria on the value of the finished product. An appraisal will determine the value of the home once it is completed.

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