You have finalized the home improvement plan and selected your contractor; all you need now is to finance the project. If you are cash rich you can just finance it yourself paying cash as the project progresses, if not you can get an equity loan from the bank or a residential construction loan to finance your home improvement construction project.
Home improvement construction loans are short term loans that allow you as property owner or the builder to borrow the money needed to remodel your property. Loan terms vary from project to project but what you need to be aware of is construction loans are interest only payments and the rate of interest charged is generally higher than the long term mortgage rates charged. The way it works, once the loan is sanctioned; funds are distributed either to the property owner or builder all through the duration of home improvement construction process in accordance with a predetermined disbursement schedule. Interest is payable only on the amount drawn to date and not on the whole loan amount. Dependent on what has been agreed with the lender; you will be allowed to draw on the funds either in a percentage breakdown example: 10% of the loan on completion of 10% of the home improvement construction project or when a specific part of the project is completed like the foundation or roof, etc. The final amount will be disbursed once the certificate of use and occupancy is issued.
You will be required to submit complete plans and specifications for the home improvement construction project you are setting in motion. Apart from the plans the builder has to provide an all inclusive budget, construction schedule and proof of qualifications to manage the home improvement construction project.
In order to apply for a construction loan you will have to provide a copy of your credit report. All lending institutions like mortgage companies, credit card companies, car dealers, etc. frequently use the information contained in these reports to decide whether you are a credit risk or not. All bad debts appear on your report for a period of 7 years; if your loan application has been rejected at any time due to the credit report, you are entitled to a free credit report copy. You are also entitled to one free copy of the report every year. There are 3 main credit reporting agencies that provide the reports and note that frequently requesting a copy of the report will lower your credit rating!
I would like to close out this article with a few guidelines on selecting the right contractor; it is a well known fact that choosing the wrong contractor means letting yourself in for a nightmare of mammoth proportions!
Ask friends and family for recommendations; ask neighbors who have recently had home improvement construction done on their homes that you have noticed; there are director agencies and the Better Business Bureau you can contact.
Check out the website; do telephone interviews to get a feel for the person. Find out about present work commitments and whether your job is something they are willing to undertake. Then have face to face meetings to decide whether you can work with the person, gauge the attitude and check paperwork (they need to be bonded and insured). Don’t just ask for references – check them out. Talk to the sub-contractors as well to find out about their credit worthiness.