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The amount of these loans is determined by the sum of soft costs and hard costs. Soft costs are fees incurred by nonmaterial expenses, such as various insurances, appraisals, taxes, permits, etc. Hard costs are made up of physical expenses, such as land and construction materials. Fees that surpass the expected total for the construction can also be placed in this category. The sum of soft costs and hard costs make up the total of the loan. A cushion of about ten percent is generally is added to this amount as a precaution in case construction costs exceed the original projections.
If you do not qualify for home construction loans, there are other avenues to explore. Both the Department for Housing and Urban Development and the Department for Agriculture insure loans to help low income families in the construction or rehabilitation of buildings. In order to qualify for the Department of Agriculture loan, which is provided through the Rural Housing Service, the borrower must be interested in a home in a rural area and must have no other adequate housing. Of the two, the Rural Housing Service is the only one the gives direct loans.
Most repayment periods do not begin until after the construction has been completed, giving the homeowner one year to eighteen months before any monthly payments need to be made.