How to Get a Home Equity Loan if the House is not Completed?
Building a home requires time, money and a plan. But sometimes, no matter how good your plan is, you run into unforeseen costs while you still are working on the house. In that case, you might need to borrow against the equity in the house even before it is finished. You can't get a traditional home equity loan on an unfinished house. But you can get a construction loan, which could give you the money you need to complete your dream home.
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Instructions
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Get a copy of your credit report from www.annualcreditreport.com, and pay for a copy of your FICO score--a three-digit number between 300 and 850. How easy it is to get a loan, and the interest you will pay, will depend on your credit score (and your spouse's score, if applicable). An excellent score is above 720; a poor score is below 600.
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Ask your contractor and other builders for references for a construction lender. Since these people are constantly working in the business, they should be able to provide you with some guidance. You also can talk to a your banker, or to a mortgage lender you have used before. You can do an Internet search, too, but it usually is best to go with someone you know or with a referral.
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Choose a few lender options based on referrals, research and your credit score. If you have excellent credit, apply to banks and credit unions; they usually have the most favorable rates. If you've had credit problems, you'll need to broaden your search to finance companies as well, such as CitiFinancial and Wells Fargo Financial.
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Compare construction loan offers side-by-side. Most construction loans are revolving, like a home equity loan,so that you can take advances as you need money. When your home is finished, many construction loans become closed-end, standard-payment loans. Look for a loan with a rate lock, which will ensure you of a fixed rate at the end of construction.
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Provide your lender with whatever documentation she requests; you probably will need to give her at least your tax forms for the last few years, as well as recent pay stubs and any information on financial accounts. Make sure to tell your loan officer if you'll be taking an initial advance off the account at closing.
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- Photo Credit Hard working construction worker at a construction scene. image by Andy Dean from Fotolia.com
