Rural Construction Loans – Your Questions Answered
If you’re interested in building a new home or remodeling your existing property, you might want to consider using a construction loan to make it happen. Let’s take a minute to break down the details, so you can get a better understanding of construction loans before you swing a hammer.
Check out some of our most common construction loan FAQs:
1. What is a construction loan?
A construction loan is short-term financing used to cover building costs. There are two main reasons you might need a construction loan:
- If you own land and want to build a new home
- If you own a property and want to do renovations
If you’re building a new home, construction loans are ideal for covering expenses during the building process. Construction loans give you flexibility to choose the contractors you want to work with while building your home, and most loans can usually be converted into a longer-term mortgage after the construction stage to help streamline the process.
If you’re undertaking renovations, a construction loan can be used to finance remodeling or repairs of your home or other outbuildings on your property, such as sheds or barns. Basically, any project that will add value to your personal property could benefit from a construction loan.
2. Are there limitations to a construction loan?
Construction loans aren’t typically designed for projects related to income-producing farms or businesses. Instead, if you want to start or expand a farm, there are a range of agriculture-specific lending options that are likely better suited to meet your needs.
That’s why it’s so important to work with a specialized lender, such as Compeer, that understands rural lending and can help you navigate home loans, agricultural financing, and everything in between.
3. What are the requirements to get a construction loan?
You may need to include some paperwork with your construction loan application, such as the building plans for the project you want to finance, a cost breakdown, and any construction contracts.
Construction loans typically require a down payment between 15-30% and a healthy credit score. Be prepared to provide some details about your finances such as income and debt, too. Your loan officer can walk you through the process to answer any questions and help you complete your application with confidence.
4. What are the pros and cons of construction loans?
Construction loans give you the power to turn a property into your dream home. Plus, construction loans are developed specifically for building or renovating, so your term and repayment plan should fit your needs exactly.
However, you may find construction loan rates are higher than other financing options, such as home equity, and your loan amount is usually fixed, which means less flexibility if your project goes over budget.
5. Is a construction loan right for you?
Ultimately, this is a question only you can answer. If you meet the loan requirements, are up for the challenges and opportunities of a construction project, and plan to own your home for the long term, then a construction loan could be a smart move. But if you’re unsure about your budget or unclear about what you want to achieve, you may need more time to make a plan before you take on a construction loan.
Get in touch with your Compeer team today.
Want to learn more about construction loans and explore all your options? Speak with a Compeer loan officer for more details about rural home financing and how to achieve your country living dreams.
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