A home construction loan is a completely different pair of wellies than a standard home loan. Construction crediting has parameters that must be well understood to properly organize the planned investment. How do you get a home loan? I invite you to read.
What is a mortgage construction loan?
A mortgage construction loan is a normal mortgage, but the goal is to build real estate, usually a single-family home.
Types of houses financed by banks
As a rule, banks can adapt to current technological solutions. They finance almost all types of homes.
1. brick houses,
2. frame houses,
3. log houses,
4. prefabricated houses.
However, you must know that there may be some restrictions for frame or prefabricated houses. For example, in several banks, construction must take place with the participation of a general contractor, which may increase the cost of construction.
The interest rate on a home loan is exactly the same as for a flat or house. The APRC and the total cost of credit will be calculated similarly. This is a typical housing purpose. The offer will be the same as for standard loans. Therefore, you have the chance for the best price conditions. At present, the average mortgage interest rate is 3.5-4% per annum. The construction loan interest rate depends on the bank, own contribution and loan amount.
The calculation of creditworthiness in construction and mortgage loans is based on standard principles. The bank will check, among others, your income, credit obligations, number of persons in the household, expenses and several other issues. On this basis, it estimates the possibility of timely repayment of the future liability. The advantage is the fact that the cost of renting the property is not taken into account, which you may have to pay in parallel with the construction.
Remember that each bank counts its creditworthiness according to its own rules. Everyone has their own calculator for determining the maximum loan amount. In one bank, they can calculate creditworthiness for USD 500,000, and in another several hundred thousand dollars more or less.
Home construction loan and own contribution
The first most commonly used own contribution is the plot on which the construction of the house will be carried out. The bank will also take into account as its own contribution min. purchased technical design, various organizational works, connections, or own funds for building the house. Materials purchased without embedding in most banks are not included as own contribution. You would have to provide invoices, though not all banks would qualify.
The bank will determine the value of its own share based on a construction cost estimate and real estate valuation. Basically, the higher the value is, the better for the borrower. Own funds reduce LTV (Loan to Value, loan to collateral ratio). There is a relationship here. The lower the LTV, the greater the chance of obtaining a better loan pricedue to the lower risk of the bank. The higher the LTV,