You will need to pay closing costs on your construction loan. You can pay upfront, or some or all of the costs may be rolled into your principal or included in your APR.

Legacy is here to make the home-building process easier, and we’ll make sure you fully understand your closing costs before you finalize your loan. Costs may include:

• Underwriting and processing fees. These are charges for checking all your financial information and documents.
• Title search and title registration fee. This checks there are no existing liens on your property, so you don’t get landed with debt later.
• Inspection fees. An inspection checks your land is safe to build on.
• Appraisal fees. An appraisal checks if the current market value of your home matches the selling price.

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These are ratios that your lender may use to determine how much you can borrow and what your rate might be.

• LTV is the loan-to-value ratio, which measures how much you’re borrowing compared to the appraised value of the property you’re buying. If your LTV is 80%, you made a down payment of 20%.
• DTI is the debt-to-income ratio, or how much total debt you have compared to your total income. Lenders want you to have a DTI under 43%, but some loan programs may allow for higher ratios.
• PMI is private mortgage insurance, which is a premium you pay to protect your private lender in case you default on your loan. It doesn’t protect you or your home.

Here are the guidelines you likely need to meet to qualify for a construction loan in Alabama:

• Credit score of 720 or above
• Debt-to-income (DTI) ratio below 43%
• Down payment of at least 20% of your estimated costs to build
• Equity in your land, meaning you own the land outright or have paid off all or some of the balance on your lot or land loan

In some cases, you can finance the purchase of your land within the construction loan, but it’s better if you already bought the land or lot using a land loan.

That way, you can leverage the equity in your land to secure a better rate on your construction loan. If you don’t own the land before you get your construction loan, then the loan is unsecured and you will get higher rates and may need to have higher credit scores and cash flow in order to qualify.

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A construction loan gives you funding in installments so you can pay your contractors on time and complete your build with ease. Here’s what you need to know:

• You need to provide detailed plans for your build before we can approve the loan.
• You get funding at key stages of your build and we pay the contractors directly.
• The total loan term is 12 months.
• At the end of your loan term, you can pay off the balance or convert it to a mortgage.

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