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Construction Loans

Each of us has their own image of a dream home in our head. We can imagine every room, what we want to put in them to create the special feeling of our home. Home is a place where we can feel relaxed and just be ourselves. That is why many people strive to buy their own property. But you need financing to make your dream come true. Construction loans can be a solution for this problem.

What kinds of home construction loans exist?

There are 4 main types of loans: construction-to-permanent loans, construction-only loans, owner-builder loans, and renovation loans. Building a house is a very complex project, and everyone needs to find their own way toward completion. And different kinds of loans can help you in this situation.

Construction-to-permanent loan

This kind of house building loan becomes a mortgage with a fixed rate after the completion of building. It’s also called a construction mortgage. Construction-to-permanent loans suit people who want to save money on closing costs (you pay only once) and take the advantage of mortgage financing. Usually you pay off the mortgage over 15 to 30 years, including principal and interest.

Construction-only loan

The main specific trait of these loans is that they are short term. Usually a borrower needs to pay it back in a year or even less. That’s why construction-only loans can be used by people with sufficient money on hand or those who plan to get this money from the sale of a previous property. In comparison with construction-to-permanent loans, you need to pay two closing costs. That’s why such loans can be even more expensive than a mortgage.

Owner-builder loan

This is a rare type of loan, but if you fit into its requirements, you can also consider this alternative. In this case, you need to have a license to build a house and have experience in this sphere. You will act as a your own general contractor, but it’s hard to get this status because of the complexity of constructing a home.

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Renovation Loans

It’s a kind of loan for people who don’t want to buy a new house, but renovate their existing one. This loan has a variety of forms, and you choose the most preferable depending on how much money you need. For example, if you need $20,000 for the project, you can get a personal loan or even use a credit card. If you need more, you can consider a credit line. What do you need to get the construction loan? Of course, the first thing you need is a good credit score. Sometimes it’s better to improve it before applying, because some lenders want their borrowers to have a score higher than 720.

The second one is a low debt-to-income ratio. This ratio compares your monthly debt payments to your monthly income. Lenders want to be sure that you will have enough money to make regular payments, and they usually require a debt-to-income ratio higher than 45.

The third one is a down payment. Usually it’s 20% of a loan or even more. The down payment can make loans more difficult to get, but it shows the lender that you are able to pay off the debt.

The fourth one is a detailed plan. Building a house has a lot of uncertainties, that’s why lenders want to see as many signs as possible that you are prepared, have calculated the budget and have taken into account all expenses. It’s like a guarantee for lenders that they will get their money back.

What should you remember about construction loans?

Construction loan rates are usually higher than mortgage ones because they are considered riskier. In the case of mortgage loans, lenders can seize your property if you stop paying, but in the case of construction loans they can’t do this, and that’s why they need more guarantees.

Also, you should remember that you need a reliable partner in building your dream home. And Level Up Construction & Remodeling is the one. We are established in Seattle and we have been helping people transform their dreams into reality for more than 10 years. Each project is led by a dedicated project manager who will consult with you about the possibilities to get a construction loan in Washington State.

We always start our work with a free consultation, where you can ask all the necessary questions. We listen to your wishes and share what we can do to make it happen. We will be with you during all stages of the project to make sure that you get what you want. Let’s start working together on your dream!