How to obtain financing to build a house

How many times has someone told you that "money doesn't grow on trees"? When choosing to build a home you must come up with some sort of payment avenue to finance the build. There are a few options available to pay for the project: pay cash, take out a mortgage for the amount (through a bank, credit union or mortgage agency) or provide private capital (which very few people successfully do).

There are a select few people that can pay cash for their home, but if you are like the more than 50 million Americans that have a home mortgage, you'll probably finance the amount. When financing your build through a mortgage, there are a few things to consider when trying to apply for a loan.

The bank will want to know everything about you and the home you're trying to build. They will want an independent appraiser to assess the value of the land and proposed home so that they can ensure the amount they are loaning is relevant to future value of the home. Next, the bank will want you to prove that you have sufficient income to make the monthly payments required. They will have you show that you (and your spouse, if applicable) can afford to pay back what you're asking the bank to give you. Furthermore, they will want to check your credit history, your employment history and (possibly) your criminal record to make sure you're who you say you are and to ensure there are no skeletons in your closet that they might want to know about.

The final hurdle for you to cross is determining the loan amount and loan type you will need to finance the build. Terms of the mortgage may range from 3 years to 30 years; interest only to interest and principle; terms may even include a balloon payment at the end or down payment up front. Many lending agencies will want some sort of "good faith" guarantee that you are committed to the project and thus require a down payment of cash up front. Showing that you are "invested" in your purchase will go a long way to ensure your loan is processed. Be sure to plan for having liquid cash assets to use for your down payment.