Qualification Necessary for Construction Loan Approval
A majority of people cannot afford the cost of new residential or commercial projects. Therefore, they look to secure a construction loan to pay the upfront cost. As you are trying to get approval on a construction loan for building a new project, it can be hard to qualify.
Needed qualifications for construction loan approval
A person with a desire to renovate a home or build a new one to generate rental revenue will need a qualified builder. On top of it a completed property with good market value deemed to be a good investment in the perception of money lenders or financial institutions. Lenders or banks are a bit wary while sanctioning construction loans. For approving construction loans in Denver, lenders include some provisions given below to protect their risks.
A majority of construction loans are approved on a blue book basis, which includes comprehensive technical specifications of your home project. It includes floor layout, ceiling height, material inventory, deadline, and estimated profits of the specific project. Even the details regarding contractors, sub-contractors, and suppliers need to be included.
It is mandatory to choose a qualified and licensed general contractor. If you wish to handle the construction on your own, then it can be hard or you can apply for other kinds of funding option.
Minimum down payment
The minimum down payment some lenders ask for is 20% to 25%. They want to ensure that the borrower is capable to complete the project even if things go in an adverse direction.
Repayment ability proof
You will be requested to provide your current credit score and income level proof.
Property value appraisal
An appraiser will evaluate the details of your blue book with criterions like location, neighbourhood, market condition, the value of similar homes to estimate the value of your completed project. They will approve the loan amount based on the finished project value.
How does the construction process work?
After approval of the construction loan application, borrowers will get a schedule on when they can withdraw funds from the total loan sanctioned. ‘Draws’ are mutually agreed upon by the lender and borrower.
For example, the first draw will be 10% at closing. The second can be 10% after clearing and pouring the foundation and so on. There may be inspections before every draw. After the construction is completed and each draw made, you can apply for an end loan or permanent loan.