Construction loans are very similar to qualifying for a permanent financing mortgage these days. The most common construction loan is the construction-to-permanent loan (CTP), it's a construction loan that automatically converts into a permanent loan after the construction period is over. The benefit to this type of loan is that you don't need to refinance after the construction is finished, so you just need to qualify once. This also saves you fom having to pay closing costs again. However the rates on these loans are generally higher than just qualifying for permanent financing, so sometimes refinancing at the end can be beneficial, just depends on where rates are.
With most lenders there are two parts, the first is qualifying for the financing portion and the second part is qualifying for the construction loan. When you own the land already qualifying for the financing portion is much like qualifying for a refinance. There are LTV restrictions as well as FICO, reserves, and often income requirements. The value that is used is the appraised value of the home you are building as if it were to be finished today, so an appraiser will take the plans & materials list and perhaps a sketch, and find comparable homes to determine the value. The loan amount can be made up of anything you'd owe on the land, plus the board & nails costs the general contractor has said the home would cost to build, any permit/impact fees, your loans closing costs, and an interest reserve to make the payments from during the construction period. Typically lenders like to see you have 5% equity after everything is calculated. If you are purchasing the land then the 5% is usually a required down payment on the total project costs.
For the second part, qualifying for the construction portion, your builder is checked out, it can be as simple as just requiring some signed disclosure, disbursement, and insurance requirement forms, or they might want to get a resume, a copy of the GC license, and other items. Basically this is making sure your builder is established and can properly build a home. Sometimes you can build your own home and save on the cost of a GC fee, and hire a site supervisor instead. Each construction lender has slightly different guidelines.
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