These days it is harder than ever to get a construction loan.
But it's even harder to find the right lender.
Many construction lenders have suspended their construction loan programs due to the economic downturn. BuildMax still has lending partners that do construction loans.
Guidelines have recently changed and most lenders require 30% down or land equity.
Here are five major things a construction loan company will consider when prequalifying you for a construction loan:
Credit (680 credit score)
Cash Reserves (6 months)
1. Income :
If you receive a W2, you have a better chance of qualifying. Self employed individuals require two years of taxes to verify income.
Your middle credit score needs to be at least 680 if you borrow less than $417K.
Your credit score needs to exceed 700 if you plan to borrow more than $417K.
3. Debt :
Your debt to income (DTI) cannot exceed 45%.
4. Cash reserves :
Most construction loan lenders want you to have 6 months PITI (new house principle, interest, taxes, insurance) as reserves. 2 months can be cash and 4 months can be 401K, stocks, etc.
5. Down Payment :
In most cases you will need at least a 30% down payment or land equity. Construction loans over $417K require 35% down.
Land equity can be counted as down payment if calculated correctly.
Land equity is money you've put down on or paid on land since your original purchase date.
Plans, permits and other incidentals can also be considered as part of your down payment.
Land appreciation is also counted as equity if you've owned the land more than 1 year.
No matter what construction loan lender you choose, BuildMax has the planning tools to help you organize your homebuilding project and get approved for the right construction loan for your project.