Subprime Construction Loan

Consumers in need of a subprime construction loan need not give up on having the home of their dreams. While the best terms and interest rates may be out of reach for borrowers with less than perfect credit, financing a building project is not necessarily impossible. The rates of interest in the below prime category can vary, with some that are only marginally below the prime rates that are available. The size of the down payment that is required by lenders who specialize in poor credit loans can vary as well. Some financial providers will ask for a larger down payment while others could possibly agree to provide financing for as little as three percent down, or even less. A construction company that is performing the work for the borrower may offer their own financing, or borrowers can shop around for their own loans. Whatever choice a hopeful home owner opts for, the subprime construction loan can become a reality even if potential borrowers struggle with credit issues.

The qualifications for attaining a subprime construction loan can include a credit score that is low, but has not fallen below a certain level. Beyond that, there may or may not be any other kind of criteria in the area of credit. Some lenders claim to not ask for any kind of asset or income verification, while others will have established minimum requirements in both income and available assets. There are lenders who will work with borrowers in terms of subordinate financing. Other features that may make specific providers of these loans attractive to the potential borrower is the lack of debt to income ratio calculations that may be required. Favorable features such as no prepayment penalties or reserve requirements can also persuade a borrower to move forward with a particular lender. However, many financial institutions will only finance new construction for borrowers with a poor credit history. With a little patience and persistence, even borrowers who lack a solid credit history can find financing. The Bible talks about the strength that is available to believers through Christ. "I can do all things through Christ which strengtheneth me." (Philippians 4:14)

When applying for a subprime construction loan, many borrowers must first understand the difference between building loans and standard home mortgages. Some consumers make the erroneous assumption that the only real estate opportunity that is open to them is to purchase an existing home rather than attempt to custom build one. But the truth is that building loans are just as viable an option as traditional mortgages. Even a subprime construction loan is a possibility if credit history is a problem. Generally, anyone who finds that they can qualify for a mortgage can usually also qualify for builder's financing. Since construction loans are used to finance the time during which the home is being built, the length of the loan is usually quite short. The borrower will customarily pay only the interest portion of the loan during this period. This fact makes it possible for families who are building a home to meet other living expenses such as rent during the time that their home is under construction. The lower payments in the early stages are a feature that can make building a custom home a reality, even for borrowers who are in need of a subprime construction loan. While a mortgage is usually paid back in monthly installments over a period of fifteen to thirty years, building loans take a vastly different approach. When a home is complete and ready for the homeowners to move in, the financing that was utilized to build the home falls due. The possibility of such a large debt falling do at one time might sound daunting, but this is where the mortgage financing will kick in and pay off the balance of the building loan.

As in all methods of financing, the better a borrower's credit, the more favorable the interest rates and terms of the loan will be. In the case of the subprime construction loan, these features can, of course, vary greatly depending on the kinds of plans offered by the various lending institutions. Since interest rates may vary during the time when the property is being built, it is also possible for borrowers with a poor credit history to zero in on a decent interest rate. Such loans are called "fixed rate bad credit construction loans." If a borrower wishes to save money by locking in to a particular rate, such terms may be possible, even for borrowers with bad credit. These loans will generally span a period of a few months and interest rates can rise or fall greatly during such a time span. A fixed interest rate may save the borrower a good deal of needed cash.

Anyone who is in the market for a subprime construction loan will need to be prepared to provide answers to a few standard questions. Lenders will want to know exactly what kind of construction the borrower has planned. Is the land on which the property will be built owned by the potential borrower or does the buyer need to find appropriate land to purchase? Once completed, will the property serve as the owner's primary place of residence or will it serve as a secondary residence? What is the name of the contractor that will be doing the work on the property? What is the estimated cost of construction? When will work on the property begin? What is the time table for completion? Whatever terms a potential borrower will chose when attempting to attain financing to build the home of their dreams, many poor credit borrowers will find that there are a wide array of choices available to them.

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