Construction Loans Texas
Everyone has their own dreams, but building a house for your family is a dream shared by many people. As a rule, the issue of acquiring your own housing is especially relevant in Texas. However, construction, which entails the purchase of equipment, is an expensive undertaking, and it takes a lot of time and a lot of money to realize such a dream. This option is not only convenient but also reasonable.
Before getting a construction loan, you need to evaluate the interest rates and other conditions offered by various lenders. Today, many of them are ready to lend funds not only for the construction of luxurious mansions but also for inexpensive prefabricated cottages.
What is a construction loan?
A construction loan is a short-term loan used to finance the building of a home or another real estate project. Home construction loans are short-term agreements that generally last for a year. Once construction is complete, you’ll apply for your final mortgage, which refinances your land and new home into one conventional mortgage loan. At the time of writing this, depending on the lender, 4.5% is a typical interest rate for construction loans.
Construction loan requirements
- Having Credit Scores of 680+;
- Proof of Income (tax returns, pay stubs, bank account statements, etc.);
- Low Debt-to-Income Ratio (not more than 45%);
- Downpayment. It ranges from 20% to 30% of the total loan amount.
Types of construction loans
- Construction-to-permanent loan;
- Construction-only loan;
- Renovation loan;
- Owner-builder construction loan;
- End loan.
How to choose a construction loan lender
There are many things to consider when choosing a construction loan lender, and it’s easy to get lost. For that reason, it can be tempting to choose the first lender you find on the net. You shouldn’t be in a hurry when making this decision. Make sure you choose the most suitable lender for your individual needs:
- What types of construction loans can you offer?
- What are the interest rates? Are they fixed or variable?
- Do I have to pay closing costs or other fees?
- Can I use the equity toward a down payment?
- How do you pay construction draws?
- Can the builder request a first draw to cover the costs of materials?
What does a construction loan cover?
Every lender has its own policies, but in general, a construction loan pays for:
- Labor and materials;
- Plans, permits and fees;
- Closing costs;
- Contingency reserves;
- Interest reserves.
What down payment is required for a construction loan?
Clients usually pay 20% to 30% down payment for a new construction loan. The requirements for construction loans are tougher because there’s no collateral to back up the loan as there would be with a regular mortgage.
How to get a construction loan
Steps to get a construction loan:
- Find a licensed builder;
- Get your documents together;
- Get preapproved.
Stages of construction
Each lender has its own projects and policies. A regular building project has the following stages of construction:
- Preparation – includes plans, permits, connection fees, insurance etc.;
- Base – includes concrete slab, footings, pad and base brickwork;
- Frame – the house frame is complete and approved;
- Lock-up – the windows and doors, roofing, exterior and insulation are all done;
- Fixing – for example, your kitchen cupboards, appliances, bathroom and toilet are all in. Plumbing and electrics are done. Your home’s plastered and painted;
- Completion – fences up. Site tidied. The builders receive their final payment.
- Available for the construction of your primary residence;
- Fixed rate and ARM construction loans available;
- Low rates during construction;
- Conforming and Jumbo Loan amounts available;
- One-time closing fee;
- Interest-only payments during construction;
- Land purchase can be included in costs.