How To Get A Construction Loan
Get a residential construction loan
Renovating the exterior of your home or building a new addition can dramatically increase the resale value of your property. To finance your project, you'll need to know how to get a construction loan if you're not able to cover the costs out of pocket. There are numerous options for getting a residential construction loan, and the best option will depend on your credit rating, the amount of equity you have built up in your home and your ability to negotiate with your bank.
How to Apply for a Construction Loan
The process is simple. Write up a budget for your project with a realistic projection of costs. Figure out how much you can finance on your own, with the amount left over representing the money you need to borrow. Meet with a loan officer at your bank, explain the project, show your calculations and fill out a loan application. If you have good credit and have been with your bank for a long time, then you chances of qualifying for personal loans are likely to be pretty high.
Remember that a personal loan might not deliver the best possible interest rate. You should also look at options like home equity loans and second mortgages, as these may be available at a cost that's more advantageous to you.
How to Get a Construction Loan with Bad Credit
The best way to get a bad credit construction loan is to access your home equity, via a second mortgage or home equity loan. Even if a bank approves a regular personal loan with your low credit score -- which is unlikely in the first place -- you will be charged much higher than usual interest rates. However, banks see home equity loans and second mortgages as having less risk, as both vehicles require you to put up your house as collateral. Thus, while you will still pay more interest than a person with good credit in most cases, you can still get the loan you need to finance your home construction project.
Remember that you're making an investment in your home. You will recover the cost of the loan and then some in the form of increased real estate resale value, even if you have no choice but to pay higher interest.