If you are going to build a house, then choosing the best construction loan might be less interesting for you than designing the house. However, taking out a construction loan is much important if you want to set up your dream home soon.
If you are not investing cash for your home building project, you will definitely require a construction loan in the first place.
In our earlier discussion, we talked about what a construction loan is, different types of construction loan, how to qualify for it, etc. Now we are going to discuss how to choose the best construction loan.
But before that, you should know where to search for a construction loan.
Where to look for the best construction loan
You should select the best resource for a construction loan considering your local area and financial situation. The below-given resources can help you find one:
a. Mortgage brokers
You can discuss with a mortgage broker and get help on your construction loan. Usually, they have a wide range of financing options for you.
These brokers may offer you few unique services and options that are beneficial for your construction project.
b. Credit unions
Credit union is one of the most popular options for construction loans where a borrower can apply. A credit union is run by its members and gives you the lowest fees and lowest interest rate in the lending industry.
Look for a credit union in your area. They are truly flexible and helpful to the customers. Credit unions are trustworthy and do not sell your loan to another party.
c. Financial banks
You may try your luck with FDIC (The Federal Deposit Insurance Corporation) affiliated financial banks for a construction loan. The fees structure and interest rates are quite high. Lending rules are also quite rigid and provide poor customer service through the entire process.
Now let’s get back to our main discussion.
How to choose the best construction loan:
Here are the steps to choose the best construction loan
1. Shop for multiple interest rates
You should look out for the lenders who deal with construction loan. Interest rates can be different from one lender to another. Each lender decides the rates based on their business priorities and economic situations.
Few lenders offer bigger and attractive benefits to get more customers into their loan program. Similarly, other lenders may offer lower benefits without compromising their business policies.
You can also contact a loan broker to get help on this situation. They have contacts with a number of lenders. The loan broker will shop for the best rates on behalf of you.
Most of the time, the loan broker is paid at the loan closing time. As the broker is getting his cut when the loan is secured, he will look for the most attractive rates for you to get a good incentive.
2. Verify lender reputation and Customer service
Checking the lenders' reputation is a must for every borrower. You need to search and find the best one for your project.
On the other hand, you should also consider how the lender treats their existing customers. Normally, those lenders have good reputation who serves their customers well.
So, check as many reviews and customer testimonials as possible. Remember, your entire construction project will be at stake if you choose a bad lender. So, always choose an easy-going, flexible, and reputed lender for your construction loan.
3. Choose the best construction loan deal
Searching the best deal is the most important criterion for your loan.
The more you can save from the interest, the less you have to pay them later.
4. Become pre-qualified
After choosing the best construction loan deal, it will be wise to pre-qualify for the loan. The lender may ask you to present a personal financial statement.
Remember, do not overestimate your construction costs and do not apply for more than what you actually need. You also need to provide a suitable repayment plan for your construction loan.
5. Fix your interest rate
Rate locking may require a fee, but it’ll save you from future rate hikes. If you wish to float with the market rate, you may have to pay higher rates later.
You should research on the current financial trends and get an idea about whether or not to lock in. You may choose your loan option with two closings - one for the initial construction loan, and second for the permanent loan.
Conclusion
It is quite tough to determine how to choose the best construction loan for your home project. Different borrowers have their unique requirements, choices, and financial situations.
But still, all borrowers must get their credit in order and gather all required financial documents before searching for the best construction loan.