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How to Finance Building a house?

Simple House Building / February 21, 2020

While there's a fair bit of information out there regarding traditional home loans and mortgage options, it's not as easy to find information about new construction loans. Construction loans are a different beast from their traditional mortgage counterparts.

With a traditional home loan, the existing home is the bank's collateral; you skip out on the loan, and the bank has something they can sell to recoup their investment.

Financing an empty piece of land for more than the land is worth is a much trickier proposition. However, if you have an adequate income and a decent credit history, you should be able to finance your metal building without a problem.

Financing options for metal buildings

Financing your metal building is no different from financing a traditional wood-framed structure. In fact, because of their durability and longevity, your choice of a prefabricated metal building may make you an even more appealing loan candidate.

The first step to financing your metal building is to make sure you are applying for the right loan. There are different loans for different building scenarios. Two of the most common include:

1. Financing the land and the construction of a metal building

This type of loan used to be divided into two phases, which could leave buyers with higher payments if a construction project lagged and interest rates went up by the time occupancy, and a permanent loan was granted. These days, most lenders skip this idea and offer construction-to-permanent loans instead.

You agree to a specific interest rate or select an adjustable rate mortgage and your loan will proceed similarly to a traditional home loan. The bank will cut checks concurrently with the building phases, so the bank's representatives regularly check to ensure construction is on track.

2. Financing only the construction of a metal building

If you already own the lot and are ready to build, you can apply for a traditional construction loan, without the need for extra financing to cover the land costs. Typically, your land will be the asset the bank holds against your loan, although other collateral may be required depending on your situation.

Keep in mind that these loans often require more documentation to move successfully through the ranks of underwriters.

Types of loans for steel buildings

Whether you are financing land and construction or construction only, you have to decide what type of loan best suits your needs and abilities.