Written by Charlotte Wood (last updated February 21, 2009)
We've all pictured our dream home, the house that would be just perfect for us forever. Fortunately for some that dream can come true if you decide to custom build your own home. The drawback however to such an endeavor is the cost. Building your own home is expensive and you'll need to take out a specific construction loan for this project. Before you take out that loan however make sure you know really how much you'll have to borrow and everything else that goes into this kind of arrangement.
When building your own home you need to take everything into consideration: the land, the construction costs, the mortgage, your own finances. Before you do anything, find out from your lender how much they'll let you borrow. This, like any other loan, is largely dependent on your credit score and current financial situation. If your lender won't allow you the actual amount you need then you should wait a while until you've either saved more or qualify for more. You don't want this to run you into dire debt.
Your construction loan will comprise four different costs: the building site, the home design, the actual construction cost, and the mortgage. This is a hefty loan! To the best of your ability determine what you'll need. Construction costs can be ambiguous when you first start, but if you can approach the lender with as specific of an idea as you can get then you'll be more in control of the situation. The actual cost of the house could be either less or more, but the better idea you have the more secure your circumstance will be.
Know exactly what you'll need to apply for a loan and what is required of you as the borrower. Make sure all your licenses and agreements are in order so you don't have any hitches when drawing up the actual loan papers. Make sure that everything on your end is ready to go and you'll have much smoother sailing when it comes to the loan. Use your lender as much as you can to help you along the way—that's what they're there for!
One of the biggest things to remember in this adventure is that your costs will fluctuate and issues will arise that will put a wrench in your house building plans; prepare for the unexpected. And as result of that, you need to make sure you're financially stable enough so you can withstand those unexpected pitfalls. Construction loans can be great for building that home you've always wanted, but you do need to be prepared and make sure that you can handle any surprises.
If you simply know the agreement, do your homework, and prepare yourself financially getting a construction loan shouldn't be a problem for you! Good luck with your dream home!
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