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Construction Mortgage

Buying a home for you and your family can be an exciting time. A construction mortgage can allow you to finance the purchase and construction of your new home. Being able to construct a brand new property gives you the freedom to design your ideal home and choose exactly how you want it to be built. Unlike a traditional mortgage a construction mortgage is drawn down in stages. As each stage of the construction is completed the lender will draw down additional portions of the total loan amount that you use to pay the construction costs.

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    While regular mortgages are given in a lump sum for a home purchase a construction mortgage is given, or drawn, based on the stage of construction. As each stage is met and verified by an inspector the lender will release a portion of the total mortgage amount. While the specifics can vary depending on the lender the draw schedule for a construction mortgage will look like:
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    There are several advantages that come with having a construction mortgage:

    Despite the advantages of a construction mortgage there are factors that you need to consider before you proceed:

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    Tips for Getting a Construction Mortgage

    Because the burden to prove eligibility is greater on self-employed individuals, it pays to be well prepared before applying for a loan. The following should be considered before going into apply for a Self-Employed Mortgage:

    How to get a Construction Mortgage

    Similar to a regular mortgage a construction mortgage has an application process. When you apply the lender will look at your finances which includes your debt situation, your income and job security, and other assets you might have. The lender will be looking to see if you can afford the home and will be able to consistently make payments on the construction mortgage.

    To qualify for a construction mortgage the lender will want to see a signed contract between you and the builder or developer. The contract will need to detail the total contract amount, the cost of construction and the land, and the construction start and end dates. The lender will be looking to see if the contract and schedule are realistic and achievable. The lender will also need to know if you already own the land or not, how much money you have on hand to cover the gaps between the mortgage draws. Once your construction mortgage loan amount is decided you will not be able to borrow additional amounts so it is important to have a proper contract and sufficient funds. If you have construction experience and want to do the work of the general contractor yourself you will need to provide proof to the lender to assure them.

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    Commonly Asked Questions

    A construction mortgage is a type of mortgage used to finance the building of a home. The loan amount is drawn out in stages based on how much of the construction has been completed. As each phase of construction is completed and verified by an inspector the lender will release additional portions of the mortgage amount.
     
    A construction mortgage is an agreement between you and the lender to finance the purchase of your home, including the construction of the property, and is paid back over time like a mortgage. A construction loan is a short term agreement typically for a year that is used for land purchases and early construction work.
     
    A construction loan is a short term agreement used for land purchases and early construction work, and typically only lasts a year. A mortgage is a type of loan to finance the purchase of a home. If you are looking to finance the construction of a home you may need a special type of mortgage known as a construction mortgage.
     
    Each lender will have their own requirements for a construction mortgage but typically a credit score in the high 600s is considered the minimum. The higher your credit score the less risky you are to a lender and the lower the mortgage rate you will qualify for. Similarly, a large down payment can help to lower the mortgage rate.

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