When you have completed the plans and the specifications for your new house, take two copies of each to the loan company, explain your financial set-up to them, and ask for a loan to build the house.
They may require that you get a bid from a reputable contractor to give them an idea of the actual cost of the proposed construction.
If you apply for an FHA loan, you should have previously procured a little booklet setting forth the things they require in a house before it is eligible for such a loan.
Many people, underestimating the cost of the building, do not arrange for enough money to complete the job.
Nothing is much more perplexing and discouraging than to get the house as far along as the completion of the plastering and not have money enough to get it near enough to completion so that one can move into it.
While you are still paying rent at the old address, the payments are starting on the new house, and you can’t use it. So be sure to arrange to borrow enough to complete the job.
If you do not need all you have arranged for, you are not required to take it, but maybe you could use a little extra for carpeting or furniture or equipment.
Some loan companies do not like to lend on a house before it is built, but when they do make the loan, it may be on better terms than some others.
It is sometimes possible to get a tentative commitment on a house, then get a short-term construction loan from the bank to build the house.
Then the loan company will appraise the house and make the long-term loan, paying the bank what it has advanced. You then start paying the monthly payments to the loan company.
Loan companies are understandably cautious about lending money with which to build when the construction is not to be done by professional craftsmen working under the direction of an experienced contractor, but money can usually be found by a little diligent search in the right places.
When you go to apply for your loan, be honest with your loan company and give them a true picture of your financial condition, so they can give you sound advice regarding financing your projected building operations.
Most of these loans are amortized; that is, they are arranged so that the monthly payment covers the interest and a small part of the principal.
Then as the principal is gradually reduced, the same monthly payment pays less interest and a larger part of the principal, so that near the end of the twenty-five-year period, practically all of the payment goes to finish up the principal.
At the end of the time the house is fully paid for by the regular monthly payments. Sometimes the payments are also made to cover a certain amount for taxes and fire insurance.
There are people who have money and who are looking for the opportunity to lend money on good houses. Perhaps you can get acquainted with one of them.
How much can a person borrow on a house? Many loan companies will loan 60% to 70% of the value of the house and lot.
Sometimes it is possible to get a loan equal to 90% of the total value of the place, but these are hard to get.
A house is such a large investment that although most of us can’t avoid borrowing money with which to build, we want to keep the payments as small as possible and to get them over with as soon as possible.
If you can get a mortgage paid off in ten years, you will save a lot of money over letting it run for twenty years.
If you buy a house already built in a tract or subdivision, all these details are already taken care of, so all you need to do is to establish your credit, make the small down payment, and move in.
If you want to build your own house, you will need to arrange your own financing. Should a relative or friend lend you the money with which to build, do this on a business-like basis, with the proper papers signed to avoid later misunderstandings.
It is a big mistake to borrow money from several sources; get it all from one place and save many headaches.
If you get a mortgage always use a mortgage calculator to help you get the best mortgage possible.
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