Many times, people get intimidated by the construction loan process, which is completely understandable. Going through any loan approval process can be painful and a little frightening: you have to give up all your personal financial information, and sometimes the banker makes you feel inadequate if you don't have perfect credit, tons of cash, and little to no debt.
If you're thinking about a loan to build a house on your lot, you might want to check out this overview of the whole build-on-your-lot process.
Now, if you're raising a family or are simply working hard to provide the lifestyle you and your family deserve, it really isn't any of the banker's business how you conduct your financial life. Really, all you need is a yes or no about whether they will lend you the money to build your custom forever home.
Sometimes, the answer from the bank is no, and that is fine. Just because one banker says no doesn't mean there isn't one out there that can make it happen for you. After all, a bank doesn't make any money unless it makes loans. It's what a bank is in business to do. Keep in mind that every bank has a different interest for certain kinds of loans and customers. Sometimes in order to get the loan you need, you have to get creative.
Here are some helpful hints from someone who deals with bankers every day.
You might have to go through a few bankers before finding the right fit.
Going in with this expectation can save you some frustration later on. Also, it's important to know that while banks are highly regulated by the federal government, they have very different attitudes about different kinds of loans. Some specialize in a particular type of loan, such as car loans, business loans, construction loans, etc.
Ask the banker up front to explain their loan criteria.
Loan criteria could include income, debt-to-income ratio, and credit score. You can figure out those numbers for yourself before going through the agony of providing all the documents to the bank. That way, you'll know whether it's worth talking further with that bank or going elsewhere.
Ask about their loan-to-value ratio.
This is the percentage of the value of your proposed new home that the banker will lend. Some will do a construction loan of up to 90% of the appraised value, some will only do 80%, and some are more flexible.
Don't let the banker boss you around.
You're in charge, not the banker. You have the right to ask them explain the process in great detail until you're satisfied and you understand the details. If they are unwilling to explain the process where you can understand it, go talk to another bank.
Even when you find a helpful banker who'll answer your questions and seems to have the loan program you're looking for, go talk to one more just to make sure everything that the banker you like said makes sense.
Bottom line, don't be intimidated by a bank. They are people trying to make a living just like you and me, and they need customers to stay in business. Make them work for your business.