The Basics To Home Construction Loans

If you have attempted to search online for home construction loans, you may have had some trouble finding information. These loans are essentially story loans in that the lender has to know everything behind the planned construction before it will provide the loan. This alone can make it somewhat difficult to land.

One of the key differences to mortgage loans is that it will not be standardized because of the fact that it is a story loan. However, not everything is complicated with home construction loans as there are some commonalities with other loans out there.

Construction loans for the most part require interest-only payments throughout construction. As soon as the job has been completed, the money is due. The final completion is when the house actually has its certificate of occupancy.

These loans are typically variable-rate loans that are priced at a spread to some form of short-term interest rate like the prime rate. It is up to you to get the contractor and lender in tact so that a draw schedule can be established. This will plot out the stages of construction so you are aware of how the interest charged on the amount of money will be disbursed to date.

Another facet that is important to know with construction loans is how much of the project cost the lender is willing to lend. It is extremely beneficial if you already own the land as this can actually be considered as equity on the loan.

How you go about acquiring the loan differs from person to person, but a lot of homeowners use construction-to-permanent financing programs. With this, home construction loans are converted into a mortgage loan as soon as the certificate of occupancy is delivered. As a result, this enables you to focus on one application and one closing.

Another option is to purchase a rate-lock agreement that is valid up to the completion date. Of course, with this you have to keep in mind there is always the potential for construction delays that would push back the final completion date.

The one thing you have to realize about these loans as oppose to mortgage loans is that they are meant to be a quick fix. Ideally, they are intended to help you with the initial cost and are then paid back rather quickly.

Home construction loans are not well-known, but can be just what you are looking for. The key is to take the time to learn as much as possible about them and weigh your options to determine if it is the right fit for your situation.