The “Self-Build” Loan Solution for Homeowners
Residential construction loans are also referred to as “self-build” loans. They are obtained by homeowners that have a desire to cover the costs of building their home or renovating a currently built home. This type of loan may be used to pay for the land, building fees and permits, contractors, materials, and similar expenses that are commonly incurred during building and/or rebuilding projects directly related to the residence.
A Risk with a Reward
Most of today’s lenders are not keen on providing a loan for projects that require being constructed from scratch. In fact, this is considered to be highly risky. This is due to the fact that the unbuilt structure cannot be offered up as collateral. Due to this risk on the lenders end, you will find that the rates associated with residential construction loans are generally a bit higher than traditional loans where the home may be used as collateral. Additionally, the repayment term will likely be significantly lower and a down payment is required; however, despite all of this, these types of loans provide you with the financial backing to build and remodel your current home, which is highly rewarding.
The Builder is Compensated Directly
One of the main ways that a residential construction loan is different than other types of loans is that it goes directly to the builder of the residence, rather than the homeowner. The funds are delivered, in installments, during various stages of the construction process. This is tracked through the means of an inspector. When you have this type of loan, you will only be required to pay only interest while the home is being built. The interest rate is variable; therefore, it may fluctuate while your home is being built. Once the home is finished, you may pay off the loan, or convert the remaining balance into a traditional type of mortgage where the residence may be used as collateral.
Types of Residential Construction Loans
If you are a homeowner, there are four types of residential construction loans that you may obtain. Below, you will find a list of these. For more information on each, you may contact one of our Somerville Bank representatives or loan officers:
- Construction Only
- Owner-Builder Construction
Qualifying for Residential Construction Loans
In order to qualify for a residential construction loan, you will need to submit information on your debt-to-income ratio and pass a credit history screening. The budget of the construction and how long it will take to be completed must be submitted. Your employment history and the amount of income that you have will also be considered.
If you have a desire to learn more about residential and want to start the application process, you may visit us at one of our 7 locations.These include our Ohio Locations: North Eaton, South Eaton, Somerville, Camden, Oxford, Hamilton, and the Mortgage Center in Richmond Indiana.
For more information, simply contact one of our friendly staff and we will be more than happy to assist you.