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When seeking a construction loan, it’s important to prove that your project is not one that will expose the lender to a high level of risk. As such, you will likely need to do a lot of legwork and provide various documents.
For most construction loan applications, you’ll need to provide the lender with a project timetable and a realistic budget. You’ll also need to supply a comprehensive list of construction details, including everything from floor plans and the type of building materials to insulation and ceiling heights. (Experienced builders typically create a “blue book” that includes all of these details for a home-building project.) Via Investopedia
But even with all these, the high-risk nature of a construction loan also demands a sizeable down payment. You’ll also need to include the cost of the land if you don’t already own a piece.
Prepare for a Sizeable Down Payment
At a minimum, most lenders require a 20% down payment on a construction loan, and some require as much as 25%. Why are the down payment requirements so high? Because construction loans are viewed as “higher risk” than a traditional mortgage loan, and the lender wants to ensure you don’t walk away from the project.
Know Where You Land
If you don’t already own the lot where you plan to build, the cost of the land will need to be included in the overall amount of the construction loan. If it’s financially possible, try to pay for the land upfront. Otherwise, you’re going to have make a much larger down payment to qualify for the construction loan. Via Investopedia
Another important consideration for getting a construction loan is to work with a qualified builder. This usually means a licensed general contractor that has already has an established reputation in home-building.