How To Qualify for a One-time Close Construction Loan in Colorado
Since the pioneer's cry of "Pikes Peak or Bust!," Americans have been heading to Coloardo in search of a heatlhy lifestyle and adventurous opportunities. Today's homebuyers continue to follow suite, and one of the biggest questions is where and how to live. For many, this includes the option of building the home of their dreams with a construction loan.
What is a Construction Loan?
A construction loan is a type of loan that is used to finance the construction of a building or other structure, such as a home.
What is a One-time Close Construction Loan?
A one-time close construction loan is a type of financing that allows you to secure funding for the construction of a new home or other building. This type of loan is typically less expensive than a construction loan only because it combines the cost of construction with the cost of a traditional mortgage into one loan.
What are the Advantages of a One-time Close Construction Loan?
One of the main advantages of a one-time close construction loan is that it allows you to avoid the cost and hassle of obtaining separate financing for the construction phase and the permanent mortgage.
What is a Traditional Construction Loan?
With a traditional construction loan, you would need to obtain separate financing for the construction phase and then refinance the loan once the construction is complete. This process can be costly and time-consuming, as it requires you to pay closing costs and fees on two separate loans.
In contrast, a one-time close construction loan allows you to secure all of the necessary financing in one place, which can save you money on closing costs and other fees. Additionally, because the loan covers both the construction phase and the permanent mortgage, you only have to go through the loan application process once, which can save you time and hassle.
To qualify for a one-time close construction loan in Colorado, you will typically need to meet the following requirements:
Credit score: Most lenders will require a good credit score (generally 680 or higher) to qualify for a construction loan.
Debt-to-income ratio: Lenders will also typically require a debt-to-income ratio of 45% or less to qualify for a construction loan. This means that your monthly debt payments, including your mortgage payment, should not exceed 45% of your gross monthly income.
Down payment: The amount of money you will need to put down as a down payment will depend on the lender and the type of loan you are seeking. Some lenders may require a down payment of as much as 20-30% of the total cost of the construction project.
Employment and income: Lenders will typically require proof of employment and income to ensure that you have the ability to make your mortgage payments. This may include pay stubs, tax returns, and other documentation.
Plans and specifications: Most lenders will require detailed plans and specifications for the construction project, including a budget and timeline.
Appraisal: Lenders will typically require an appraisal of the property to ensure that it is worth the amount of money being borrowed.
Insurance: Lenders will typically require proof of insurance for the construction project, including builder's risk insurance and a lender's policy.
It is important to note that these requirements may vary by lender and may be subject to change. It is always a good idea to speak with a lender to discuss specific requirements and to determine what you need to do to qualify for a construction loan.
What is the process for obtaining a construction loan and paying a builder?
The borrower applies for a construction loan with a lender. This typically involves submitting an application and providing documentation such as proof of income, credit history, and plans for the construction project.
If the loan is approved, the lender will typically disburse the funds to the borrower in stages, as the construction project progresses. This is known as a "draw schedule."
The borrower will use the funds from the construction loan to pay the builder and other contractors as the work is completed. This may involve the borrower providing the lender with receipts or other documentation to verify that the funds were used for their intended purpose.
As each stage of the construction project is completed, the lender may require an inspection to verify that the work has been done according to the plans and specifications.
Once the construction project is completed and the lender has verified that all of the work has been done according to the terms of the loan, the borrower will typically be required to pay off the remaining balance of the construction loan and apply for a mortgage to finance the purchase of the completed home (unless the borrower has a one-time close construction loan.)
It's important to note that the specific terms of a construction loan, including the draw schedule and the requirements for disbursing funds to the builder, can vary depending on the lender and the specific terms of the loan.
Have questions about qualifying for a one-time close construction loan? Let's talk!