When you are thinking about building a property, there is a lot of planning involved. A full project is needed that then has to be authorized in order for the construction phase to begin. And though the construction can be financed through a construction loan, the project can also be costly and you may need funds. Fortunately, most new construction loans also include project financing.
There are construction loan programs nowadays that combine both the funds needed for the constructions and the ones needed for completing a residential construction project. You may wonder what are the different costs that these loans cover for and what information does the project need to include so as to guarantee its approval and the loan's disbursement.
Information Needed For Appraisal Of The Future Property
Since with this kind of loans you need to know the value of something that hasn't already been built as opposed to mortgage loans where the appraisal is easier because the property already exists, some information will have to be delivered to the appraiser and the lender so as to let them figure out what the final worth of the property will be.
Basically, in order to obtain a proper appraisal of the future property you'll need to provide information regarding what is going to be done and what materials are going to be used, how much the materials will cost, etc. Additional costs like the ones related to the contractor, plans and authorizations must also be included in order to provide an overall idea of the costs of the project.
Information Needed For The Loan Approval
As regards to the documentation needed for the approval of the loan, the issue is more complex. As with regular loans, you'll need to provide both income and credit documentation to prove you are trustworthy. Income documentation requirements may not fully apply on stated income construction loans but a credit check will always be run.
Also the lender will require a credit check on the contractor that will take on the construction project so as to make sure that the contractor is also trustworthy and that there will be no problems or delays on the construction. Most of the documentation requirements from the contractor will be then handled by the contractor and the lender without your intervention.
Loan Amount And Limitations On Stated Income
Depending on whether you can show proof of your income or not, you'll be able to obtain higher or lower loan amounts. The loan amount will also depend on the applicant's credit score and history among other factors. Stated income construction loans don't have limitations on the loan amount but on the loan to cost ratio thus requiring a reserve for the costs and contingencies of the project.
It is possible to obtain up to $2,000,000 or even more with some lenders but it will all depend on your credit report records and the feasibility of the project. The loan to cost ratio can reach up to 95% of the projected value of the property which implies at least a 5% reserve to cover for the rest of the costs of the project and any unexpected expenses.
