Select Page

Construction Loans for People with Bad Credit

If for any reason you struggle with a poor credit history, yet desire to build a house, you may still be able to obtain a reasonable construction loan despite your difficulty. As a matter of fact, even some construction companies will be willing to finance the work they perform. However, if you prefer to do your own financing, be prepared to do some research in order to find a good deal with a low interest rate. Factors to look for while doing so include learning about what sort of closing cost you will need to pay, as well any other additionally required fees, either included or due up front, that are associated with loans intended for those with a poor credit history. With so many financial organizations around that offer such loans, you have to get several quotes to find the best deal for you.

When applying for your construction loan, be prepared to give your potential lender details such as the type of construction you have in mind, the location of the property, and the status of the property’s ownership, as well as answer any questions they may ask about your credit. Before granting your construction loan, your lender will also want to know whether you intend the structure to be a primary or secondary residence, or have other intentions.

Other questions may also include inquiries regarding your choice of contractor and your planned schedule for beginning construction. You should also have an accurate estimate prepared outlining the projected cost of your building project, as well as how much of a cash down payment you are able to put towards your construction loan.

In review, questions you should expect to hear from your lender when applying for a construction loan while having poor credit include: where is the property located? What type of structure do you intend to construct? Do you already own the property which you plan to build upon, or do you have yet to finalize the purchase? Is the structure you wish to have built going to eventually be a primary or secondary residence, or do you have other intentions for the new building? Finally, can you provide details regarding your contractor (if you have chosen one already), and when do you plan to have the work started? Once you have answered these questions to your lender’s satisfaction, you will need to have a prepared plan detailing the estimated cost of your construction, as well as the amount of capital you can put towards a down payment for your loan.

Some of the types of construction loans available to those with poor credit include simple construction cost only loans, construction to permanent with interest reserve loans, and construction to permanent interest only loans. It is in your best interest to take your time and do your research in full before choosing your construction loan. Be aware that, because of your less than perfect credit history, you will be vulnerable to higher interest rates on your loan repayment, and will have to adhere to a stricter set of regulations. This being the case, it is even more important to carefully choose your terms of finance for your construction loan. The most common loan term options you will encounter will be for 10, 15, 20, or up to 30 years. Obviously, the rate of your monthly payments will be higher on a ten year loan than for a thirty year loan, but this is balanced by a lower total payout over the period of time you have the loan due to interest. Over the total lifetime of your loan, a thirty year loan, though it seems to save you money on a monthly basis, will cost you more overall than the ten year loan once the interest rate is factored in,

When setting out to get a loan, it’s helpful to know the types of construction loans available to those with poor credit, including simple construction cost only loans, construction to permanent with interest reserve loans, and construction to permanent interest only loans. The most intelligent approach is to just take your time and do your research in full before choosing your construction loan. Another important decision to consider is what sort of term you want for repaying your construction loan. Be aware that, because of your less than perfect credit history, you will be vulnerable to higher interest rates on your loan repayment, and will have to adhere to a stricter set of regulations. Once you have chosen the loan you want, you have a few more options to customize your payment plan. The most common loan term options you will encounter will be for 10, 15, 20, or up to 30 years. Keep in mind that on a short term ten year loan, you will save money in interest fees and have your loan paid off in full sooner, but you will have a higher monthly payment which you must meet in the meantime. Over the total lifetime of your loan, a thirty year loan, though it seems to save you money on a monthly basis, will cost you more overall than the ten year loan once the interest rate is factored in.

About The Author

Ben Todd

Ben was a seriously broke graduate student with bad credit who after finding himself rejected for any sort of credit card or loan for most of his adult life, finally decided to get his financial life in order. 'He spent several years reading as many financial advice books and blogs as he could.And suprisingly, Ben found he actually LIKED the topic of personal finance; after fixing his own finances, starting his own successful work at home website business, and using his earnings to get out of debt, created echeck.org to help others do likewise!

Leave a reply

Your email address will not be published. Required fields are marked *

Popular Posts