Getting Pre-Qualified For a Construction Loan

Whether you are remodeling your existing home or building a house from the ground up, a home construction loan can help you make your vision a reality. Getting pre-qualified for a home construction loan is easy and can be an important planning phase of home improvement, renovation, or new construction.

Pre-qualification is a free, informal process that determines how much money you can afford to borrow. Since this money represents your construction budget, you can make solid design decisions now, before any ground is broken or any money is spent.  The level of detail required for pre-qualification depends on the lender. Most lenders will ask a few basic questions about your planned or existing home, the extent of remodeling desired, and your income.

From this information and your credit rating, the lender will tell you how much money you can borrow. Now that you have a dollar amount, you should be thinking further ahead and in greater detail. How much does the site cost, or what is the present value of
your property? Do you own the home free and clear, or are you paying down a mortgage? Are you building a custom bi-level home or a one-room log cabin? Will the basement be finished or unfinished, or will it just be a crawl space?

Design decisions like these make a difference not only in cost, but also in the amount of money that you can borrow. How? Unlike a mortgage, which is based on the current value of your home and assets, construction loans are based on the potential value of your new or improved home. Certain designs tend to cost more money to realize, and some designs yield better value once completed. Once you have a pre-qualified loan amount, you can then make more in-depth decisions about your custom built home or remodeling project.

Remember, there is no such thing as too much pre-planning when you are building a new home or renovating your existing home. Good planning from the very beginning of the construction project will save you money and spare you a lot of headaches. Getting pre-qualified for a construction loan is an opportunity for you to see the nuts and bolts of your project, and how your vision translates into dollars and cents.