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Construction Loans

Building Better Together

Have you been planning and thinking about building a new home? There are so many things to consider, such as determining the right floor plan, picking the best contractors, selecting the materials, selling your existing home. Sometimes, with all these other things to consider, you miss the most important planning of all — your financing.

Construction can be a stressful process. Having flexibility and saving time and cost in your financing are as important as anything else you do. See us before you make your building plans so we can walk you through the process from start to finish. We’ll help you be better prepared and lower your stress a bit!

Construction loan qualification criteria

Contractor: Your contractor must be a licensed contractor. A qualified builder is a licensed general contractor with an established reputation for building quality homes. If you, as the borrower, are the contractor, then you must be licensed as a qualified contractor.

Detailed specifications: This includes floor plans as well as details about the materials that are going to be used in the home. Builders often put together a comprehensive list of all details, which generally include everything from ceiling heights to the type of home insulation to be used.

Home value estimate and pre-construction appraisal: An appraiser considers the plans and specs of the house as well as the value of the land that the home is being built on. These calculations are then compared to other similar houses with similar locations, similar features and similar sizes. These other houses are called “comps,” and an appraised value is determined based on the comps.

A mortgage in favor of Security State Bank must be in place before any work can begin on the property.

Down payment: The minimum down payment is typically 20% down for a construction. This ensures that you are invested in the project and won’t just walk away if things go wrong.

Cost overruns: The borrower must show the ability to fund potential cost overruns up to 20% of the project size.

Credit: With construction loans, borrowers must often meet certain credit guidelines. Typically, a credit score of 640 or above is required to qualify.

Ability to repay: Borrowers must show they have the ability to repay the loan based upon their current income.

Debt-to-income ratios: One of the main factors when determining your ability to afford a loan is your debt-to-income (DTI) ratio. Your DTI ratio is the relationship between your monthly debt payments and gross monthly income. This ratio needs to be reasonable to qualify for a conventional mortgage loan, meaning the amount you spend on monthly payments needs to be “reasonable” compared to your monthly income. Typically, your ratios need to be less than 43%, but it is possible for them to be higher.

Terms: We offer interest-only construction loans as well as a one-time close construction loans with fixed-rate financing.

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