If you’ve recently decided to build your own home, congratulations! This is a goal that many people dream of and eventually work toward by taking all the necessary steps toward making that dream a reality. Asking yourself the right questions along the way—and seeking out the right resources when you need help answering these questions—will help you stay on track and prioritize.
Assuming that you’ve already acquired land on which to build your property, the next step usually involves thinking about how you’ll finance the process. In some cases, you might take out a construction-specific loan. But for some, this means taking out a personal loan to build a house. Below are some questions you might ask yourself regarding that process.
What’s my budget, and how much do I need to take out in a loan?
Setting a budget is an important first step. This allows you to determine how much disposable income you have, and how much you may need to take out in a construction loan or personal loan to build a house. Many people don’t have the cash on hand to fund the entire process without needing some kind of financial assistance, especially considering that the cost is often equivalent to the amount you might take out for a mortgage on an existing property.
Be realistic with yourself about your assets. If you own property already and took out a mortgage for that purpose, consider the equity you have in that home, but also the responsibility of paying that down over time and how it affects your budget.
What other debt do I owe, and what are the timelines?
What other debt do I owe, and what are the timelines?
It’s not uncommon for Americans today to have significant debt, whether it’s in the form of auto loans, loans to pay for school, mortgages, and credit card debt. Before taking out a personal loan to build a house, it’s a good idea to assess how many other financial obligations you currently have. Pay attention to the interest rates too and include that in your calculations. However, when considering your finances and asking yourself the question what is a benefit of obtaining a personal loan, it is worth remembering that one of the pros of a personal loan is the low-interest rates compared to other loans such as credit cards and payday loans.
Do I feel confident that my future income will stay the same or change in any way?
Whenever a loan is taken out, a key consideration is any future expected or predicted change in employment or anything else that might affect your regular income. If you feel stable and happy in your current work situation, and don’t foresee any major upcoming changes, then you’re probably in a safer place to consider financing.
Let’s say, however, that you have a plan to change careers in the next six months. You’ll be leaving your current job and enrolling in a certification course or maybe taking an entry-level position at a company where you’re excited to learn the ropes. Maybe you don’t have a specific idea yet, but the thought of leaving your job has been on your mind for quite some time. If you feel that you’ll make significant decisions like this in the not-so-distant future, then ask yourself how it might affect your ability to repay a personal loan to build a house.
What are my options in terms of financial institutions from which to borrow?
Personal loans are a popular option used for many purposes, and they are available at banks, credit unions, and other financial institutions. The conditions and terms of personal loans may vary, so it’s important to understand the differences when researching where you may end up taking out a personal loan to buy a house. The options can be overwhelming!
Credit unions typically provide some excellent benefits in terms of personal loans. They are not-for-profit institutions, meaning that they don’t exist for the purpose of maximizing revenue or profit. Instead, earnings are paid back to members in the form of lower loan interest rates and better savings account interest rates. Credit unions, such as Central Willamette Credit Union, are also more oriented toward their members and community, because they aren’t part of a larger corporation. For these and other reasons, many individuals choose to work with a credit union when taking out personal loans.
What type of personal loan would benefit me the most?
Indeed, there are different types of personal loans. For example, one type is called an unsecured personal loan, which means the loan is supported by the creditworthiness of the borrower, rather than by any type of collateral. Collateral examples would be a large asset like a car or house. It’s important to know that with an unsecured loan, the risk is higher, due to the lack of collateral that the bank could use to cover in case of default. Therefore, you usually need a high credit rating to be approved for certain unsecured loans.
There’s also the option of an unsecured personal loan that’s a line of credit. As you pay off this loan, the funds become available again for you to use. This one also requires a high credit score, due to the lack of collateral. However, there are other options where you might offer collateral in the form of cash equivalent to the amount you are borrowing, which is then a secured personal loan.
As you can see, options vary. If you have additional questions or need clarification, going to a credit union or bank in your community is the first step. You can meet with a specialist who can explain the different terms and conditions of the personal loans and also provide you with a sense of how much you’d be able to borrow based on your credit score and collateral. You’ll soon be on your way to building your house!
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