Selecting a Construction Lender

When selecting a home construction lender, you may find it helpful to ask a family member or friend for a recommendation, particularly if they’ve worked with a home construction lender in the past. Talk to two or three home construction lenders before making your decision. You might also inquire about a home improvement loan or home mortage refinance through the financial institution where you have your checking or savings account.

Before you talk with a home construction lender, it is important to define the type of services you need. If you are considering a major home improvement renovation, for example, you’ll want to find a home construction lender that has experience overseeing projects that are similar in scope. The home construction lender should be familiar with construction permits, escrow accounts, and procedures for periodically inspecting a contractor’s work.

Your FreeLoanComparison.com lender partner can also explain the types of mortgage loans and construction loans available and provide guidance on which home loan is best suited for your situation. Ask your home construction lender if they offer programs like a home improvement mortgage.

Working with a FreeLoanComparison.com Lender Partner

If you choose a home loan mortgage such as the Home Improvement Mortgage, there are several steps your FreeLoanComparison.com partner will take to help protect your home improvement investment.

Your home construction lender will make sure your contractor meets all required licensing, bonding, and certification standards. Your home construction lender will require an appraisal of the property to determine its current value and whether the cost of the renovation will be recouped in the form of a higher property value or post-renovation value. Your home construction lender may also review the construction contract before you sign it.

Most home construction lenders will also require you to set aside 10 to 15 percent of the renovation costs in a contingency reserve fund. This will cover cost overruns and unexpected project changes that occur.

Before the mortgage closing, a rehabilitation mortgage escrow account may be set up by your home construction lender. The monies borrowed to finance the home improvements plus the contingency reserve will be placed in this account. As construction progresses, payments will be made to the contractor from the escrow account. You will be paid interest on funds in the escrow account that have not yet been paid to the contractor.

These important safeguards provide an extra level of protection against unscrupulous contractors and contractual pitfalls.

While stringent home construction lender oversight is a valuable asset during any renovation project, it is not meant to replace your active involvement in the process. You typically have daily interaction with the contractor and should continually check to ensure the project is proceeding as planned. As issues arise, consult with your home construction lender to determine how best to proceed.

For more helpful mortgage tips on a construction loan, mortgage refinancing, home loans, reverse mortgages or a home equity line of credit, contact FreeLoanComparison.com today!

Last update: November 14, 2008