San Luis Obispo Construction Loans
San Luis Obispo, California is home to more than 40,000 people and employers such as Pacific Gas and Electric and Tenet Healthcare. It’s the perfect place to build the home of your dreams where you can grow with your family. Construction loans help you easily afford the cost of building your new home, but there are many things that you need to know about these loans and the process.
Types of Construction Loans
A construction loan is a loan given to you by the bank to cover your building costs. You can use the money for both the designer and builders you use along with the needed materials. They often have a higher interest rate than other loans and are available in several types such as construction to permanent loans.
Also known as a single close loan, this is a type of loan that you use to pay your construction costs. Once the home is ready and you move into it, the lender will turn the loan into a traditional mortgage.
Another option is a construction-only loan, which gives you funds to cover your construction costs. The lender will usually only give you a limited amount of time to pay off the loan such as one year. If you cannot pay off your San Luis Obispo loan, you will need to take out a second loan. There are also renovation loans that let you pay for renovations to an existing home. You can often secure a home equity loan or get a personal line of credit.
Owner and building construction loans California options are also available where you borrow money as the builder. These are often hard to find and secure. You may also hear about end loans, which combine your construction loan with your mortgage. The lender allows you to use mortgage funds to pay your construction costs and then asks that you pay off the full mortgage.
How Do Construction Loans Work in San Luis Obispo, CA?
The way your loan works will depend on the type of loan you get. With construction-only loans, the lender will only give you a set amount of money at different periods. The idea is that you use those funds to cover specific construction costs before you get more money.
With renovation loans, you get all of the money upfronts and make payments until you pay off the total amount with the interest charged. If you opt for a loan that rolls over into a mortgage, you’re responsible for paying it off over 10 to 30 years. You often have the option of paying a little more each month to pay less in interest and pay off the loan before it’s due.
Land and Construction Loan Interest Rates in San Luis Obispo, CA
Lot and land loans give you funds to pay for the land or lot where you want to build a home. These and other types of loans charge interest rates based on your credit score and other factors. You can secure construction loans with interest rates of as little as 2.81%, but other loans may charge a rate of 5% or more.
Comparing the rates from multiple lenders can help you get the best rate. Both your credit score and history determine your interest rate. If you made any late payments to your creditors in the last year, you may find that you only qualify for higher interest rates.
Qualifying for a San Luis Obispo, CA Construction Loan
To qualify for commercial construction loans, you need a guaranteed source of income. This can be the money that you make from your job or proof that you are self-employed. Lenders also look at whether you can afford a down payment and may ask for as much as 10% down. You need to have a construction budget and know which company or contractor you want to work with as well as a high credit score.
Loan Requirements for Construction Loans
The minimum credit score needed for a construction loan varies from lender to lender. You usually need a score of at least 720, which experts refer to as a good credit score. If you have a lower credit score, you may need to look harder to find a lender or apply with a co-signer.
Builder Laws and Regulations
No matter which of the construction loans California residents go for, they usually need to already have a builder when they apply. The builder must agree to follow San Luis Obispo CA regulations and laws, which will often involve securing building permits and following construction codes. If your builder does not get the proper permits, the city may halt construction and charge you high fines.
The Pre-Approval Process
An easy way to find out if you can get a construction loan is through the pre-approval process. This allows you to see if you qualify for a loan and how much you can borrow. It doesn’t involve as many steps as the approval process does but asks for proof of your residence and employment or income source. You can apply online and find out in minutes if you qualify for a construction loan by clicking here.