Are you looking into home loans in Sterling Heights, Michigan because you want to buy a home that needs some renovations? Or have you bought some land and now you’re ready to build? If you can answer “yes” to either one of these questions, then a construction loan from Gem Home Loans might the perfect fit for you and your family. Let’s take a look at what a construction loan actually is, and what people typically need to do in order to qualify.

Construction Loans – The Basics

Home Loans Sterling Heights, MichicanA construction loan is just like it sounds – it’s a loan for building a new house, or buying an existing house to fix it up. All loans can be complex, but a construction loan can be trickier than most. One of the main reasons is that you won’t have much collateral to back the loan. They tend to take more work than more traditional home loans, so they usually take longer to process.

But that doesn’t mean that a construction loan isn’t right for you. Here are a few different options to consider.

  • Renovation loan – This is a good option for people who want to buy a “fixer-upper,” but don’t have the money for the substantial renovations that will be needed. In most cases, the loan will be mixed into the mortgage loan after the renovations are finished. Funds are usually paid following what is known as a draw schedule. As soon as one stage of the project is complete, the funds to cover that stage will be released.
  • Construction only – A construction-only loan has to either be refinanced or paid once the home is completely built. A borrower may have to not only qualify several times during construction, they may also have to pay closing costs multiple times.
  • Construction to permanent – This is a loan that folds into a regular mortgage once construction is complete.

In most cases, the interest on a construction loan will fluctuate with the prime lending rate, and rates will usually be a great deal higher than those associated with traditional mortgages. It can even be difficult to shop around for construction loans, since many lenders don’t even advertise that they offer them.

Construction loans are typically issued on a short-term basis. They usually only cover building costs while construction is ongoing. You may need to make interest payments each month during this time.

Qualifying for a Construction Loan

It’s usually more difficult to get approved for a construction loan than for a regular mortgage. Most lenders will want to get assurance that the home will actually be built before they’ll approve this kind of loan. You’ll probably need to have a lot of documentation to prove your financial situation is stable enough to warrant a construction loan. You’ll probably also need a high credit score and a debt-to-income ratio of no higher than 45 percent. There’s also a chance you’ll need to make a substantial down payment of as much as 35 percent.

Contact Gem Home Loans

Even though construction loans are among the most difficult home loans in Sterling Heights, Michigan to get, don’t let that dissuade you if it’s something you really want to do. Get in touch with Gem Home Loans and we’ll do what we can to help make your dreams come true. Call (248) 780-1030 or use our convenient online form.