Obtaining a Loan Prequalification or Loan Preapproval
When you begin shopping for a construction loan, ask one or two lenders to prequalify you for a loan. This will give you a good idea of the maximum amount you can borrow, which will help you develop a realistic budget. Prequalification, however, is not a promise of a loan. To prequalify, you must answer a few questions about your income, assets, liabilities, and credit history. Assuming the information you give is accurate and no other issues surface when you formally apply for the loan at a later date, you will probably be approved. Should the lender’s review of your formal application turn up different information, however, the lender may deny the loan approval or offer to lend you less money.
As soon as you have selected a lender, consider applying for preapproval of your construction loan. Preapproval takes prequalification one step further and results in a written commitment by the lender. Some lenders charge for this service, some do not. Preapproval comes with a list of conditions you will need to meet for full approval, which usually includes a satisfactory appraisal of your completed home and the requirement that your personal financial situation does not change. If you are preapproved before selecting a modular dealer and general contractor, you will be able to move ahead with building your home more quickly, since the lender can immediately begin to review your construction documents after you make your selections. To secure final approval, the lender must receive written documentation of your income, assets, and liabilities. It will also need to obtain your credit rating from an approved agency. In addition, it will want copies of signed contracts with your modular dealer and the GC and, if you are buying a building lot, the purchase and sales agreement with the land seller. Finally, it must receive an appraisal on your home showing that it is worth what you are paying.
For more information about obtaining a prequalification or preapproval for a construction loan, see Financing a Modular Home in my book The Modular Home.