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If you want to borrow a home construction loan, a bad credit score can hit you badly. It is not simple and easy to obtain any loan because of the rules and terms related to the lending have become more stringent. But, it does not mean that you need to put your dream of constructing your home on hold. Rather, you have to take come constructive steps before you apply for a home construction loan.
Numerous banks and private lenders offer you home construction loan based on your eligibility and other important criteria. You can borrow a construction loan to build a first home, second home, make additional floor in the existing home. The home construction loans are typically offered for shorter duration and some can be converted into mortgages once the construction has been completed.
Any lender will easily lend you a loan if it is satisfied with your repayment capacity and finds you at minimum risk. But, what if you have already had a bad credit score? Fortunately, there are various ways that can be helpful in availing the loan you need, regardless of your credit score.
Improving your credit score:
First, it is really important to find out how bad your credit score? Get a copy of your credit score report online. Check it carefully for any mistake that might be affecting your credit score or lowering your credit score. Just remove inaccurate negative items from your report and it will help in improving your credit score by several points.
Now, pay attention to other negative items on your report. If there are items, which are close to their drop-off dates, you might want to postpone your construction. Pay off newer items as soon as possible. Don't worry if your score doesn't rebound immediately. Also, make sure that you will not exhaust the maximum credit limit of any of your credit card.
If your score is still below 680 after making all such changes. In that case, most of the lenders will consider you a high-risk borrower and getting a construction loan will become tougher for you. With a low credit score you can avail an unsecured loan, but getting a secured loan will be much complicated.
Secured construction loans: Obtaining a secured construction loan is good option for those who have a bad credit score, or who have a lot of debt obligations. When you apply for a secured loan, in that case you give your property as collateral to secure the loan. This enables lender to take possession of the property or sell the property to get back their money, if you default your loan payment. Secured loans do put your property at risk, but at the same time it enables you to obtain a loan if you have a bad credit score and you disqualify for unsecured loans.
Building a home is expensive affair, so you need something valuable to offer as collateral for a availing a secured construction loan. If you own the land where you want to build home, you can use that land as collateral to get your loan approved by bank. But, if you want to extend your home or build some new area in the home, so you can use your home as collateral to get the loan.
Large down payments: If you don't want to put your property at risk and want to avail a construction loan at the same time, you can make a large down payment to get the loan. Though, it is a bit complex to arrange the money for making large down payment, but it is always good to show yourself as creditworthy. However, the lender is taking risk by giving you a loan because of your bad credit history. To ensure your creditworthiness you can make a large down payment. Putting off more than 30% of the requested loan amount up front will show your seriousness to the lender.