Like any agreement, the terms of a home mortgage, including construction loans, can be negotiated. Attempting to obtain home financing is stressful enough without having to add master negotiator to your resume. So we’ve put together 3 tips for negotiating a construction home loan to make the process easier:
- Be Prepared: Do your research prior to meeting with your loan office. Since construction loans can be complicated, look for a lender that specializes in this area. Know what the current interest rate climate is and know you and your spouse’s personal credit scores. Having your credit and income history ready when meeting with your lender for the first time will ensure you appear organized and educated on the process.
- Know What You Want: Do some ground work and have an idea of what and where you want to build before contacting a lender. Different geographical regions have different restrictions on loan amounts and building permits, so having an idea of what and where you want to build can streamline the process. It can also help you find a lender with the right specialties. It might even be wise to meet with an architect and get a sense for what the project will cost, although you can always get pre-approved first so you know what your budget is.
- Learn to Negotiate: No matter how simple your transaction may seem, having basic negotiation skills is just a good idea for life in general. Even if you look good on paper with adequate income and solid credit, you may still need to convince the lender of your ability to repay.
Once you’re prepared to meet with a lender, it also helps to know what areas of your loan can be negotiated. Here are a few:
- Interest rates: While interest rates are tied to market conditions, there’s room for negotiation, especially for borrowers with outstanding credit.
- Loan timeline: Many lenders will have specific timelines in place for when a loan will close and fund, but this date has some flexibility depending on the loan type.
- Closing costs: Some fees a lender charges can be negotiated while others are regulated by law. This is where your research can really pay off.
- Escrow account: Many lenders require borrowers to escrow funds for property taxes and insurance in what’s called an “impound account.” The terms of these agreements are often negotiable.
This should be a good start toward negotiating a construction home loan. It’s important to remember that all negotiations must take place prior to signing any official documents. Once you’ve signed your loan documents and agreed to your lender’s terms, the time for negotiation has passed.