 TITLE: How Do Home Construction Loans Work? CONTENT: Types of Home Construction Loans\n--------------------------------\nFive types of home construction loans are available. They are:\n1.  Construction-to-permanent loan: This loan mixes construction financing with conventional mortgage financing. Once the home is completed, the loan switches from a construction loan to a mortgage loan.\n2.  End loan: With this type of loan, the builder pays for construction of a home, and the buyer takes out a mortgage to purchase the home directly from the builder.\n3.  Owner-builder construction loan: Are you a homebuilding guru? If so, you may want to explore an owner-builder construction loan. With this type of loan, you serve as the general contractor rather than hiring one.\n4.  Renovation loan: To pay for a major home overhaul or a home addition, a renovation loan may be an option. This sort of loan lets you borrow against the predicted value of your renovated home.\n5.  Construction-only loan: Most lenders no longer provide this kind of loan. A construction-only loan covers construction costs and must be paid off when the term of the loan expires. Otherwise, the borrower must obtain permanent financing.\nHow and Where to Get a Home Construction Loan\n---------------------------------------------\nTo qualify for a home construction loan, you'll generally need a credit score of at least 620 (although the higher, the better), a debt-to-income ratio of up to 45%, proof of your ability to pay off the loan, a down payment covering 20% to 25% of the construction costs, a signed contract with a licensed and insured builder, an appraisal of the value of the land and completed home, and a complete blueprint for the project.\nBanks, credit unions and mortgage lenders are among the places where you can obtain a home construction loan. You might start by comparing interest rates, closing costs and other loan aspects at lenders in the area where your home will be built. In doing so, remember that you may want to take out the initial construction loan and the permanent loan at the same lender to make things more convenient.  \nThings to Consider Before Applying for a Home Construction Loan\n---------------------------------------------------------------\nIf you decide to apply for a home construction loan, ask these four questions:\n1.  Is your debt-to-income ratio low enough to qualify for the loan? If it's not, work toward reducing your debt or bumping up your income to improve it.\n2.  Do you have enough money set aside for a down payment? If not, begin saving up to make at least a 20% down payment.\n3.  Where does your credit score stand? If your credit score is below 620, focus on reducing debt and paying bills on time to raise your score.\n4.  Do you have all of the necessary paperwork? A lender may want to see pay stubs, tax returns, bank statements and other financial documents before approving your application for a home construction loan.\nBottom Line\n-----------\nBefore you go ahead with an application for a home construction loan, check your free credit report from Experian to ensure your credit is in the best shape possible so you can score a low interest rate. END