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Construction Loans
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Maybe you have some sort of a "dream" home in your mind that just isn't on the market, or perhaps you've already picked out the perfect piece of land--but it still needs a house. If such case, chances are you'll need a construction loan to build your new home. But fact of the matter is there are a few things you should know before you get the loan, such as:
IT'S SHORT TERM As compared to a regular mortgage, which typically has a term of 15, 30 or even 40 years, a construction loan is short-term. Generally, it is worth noting that the loan term is 6 months to a year, and the money is used to finance the building of the house. On the other side of the coin if you're looking for a construction loan, make sure you find a lender that will "lock-in" your rate during the loan term, so you don't have to worry about your costs rising during the construction loans of your home. IT'S DUE ALL AT ONCE As is pretty much the case with most mortgages, you pay off the loan a little bit at a time in the form of monthly payments. It is worth mentioning in this regard that with construction loans, however, the entire balance is typically due at the end of the loan term once the house is built. If experts are to be believed that means you need to either have a cash reserve that you can use to pay off the loan when it's time, or you have to get some other type of financing or loan to cover the balance. It is commonly termed as "permanent" financing, this type of loan requires a new application, and you'll have to pay closing costs and other fees. Furthermore it is worthwhile remembering that in some cases, you can get a combination of a construction loans and permanent financing so a second application and extra set of fees is not required. YOU DON'T GET THE MONEY IN A LUMP SUM Point to be noted in this regard is that most people assume that they receive the money from the construction loans , and then it's their responsibility to save it and use it to pay the home builder. However, fact of the matter is although it is your responsibility to disburse the funds to the appropriate contractors or subcontractors, you won't receive the funds in one lump sum. Typically, in an ideal scenario the bank will give you a certain amount of money periodically based on the percentage of work that's been completed on the house. In simple terms it's important to use a reputable lender online to make sure your personal information is secure. If you want to build a home, there is no denying that a construction loans is almost a necessity (unless you have significant savings). But fact remained that there are differences between a construction loan and a typical mortgage loan, so be sure to talk to your lender for more specifics. Theoretically speaking a home construction loan is a loan where the lender has to know the story behind the construction of the house before sanctioning the loan. In other words, it is worthwhile remembering that the home construction loan can be called a story loan, which is to be understood before a decision is made. It is worth mentioning in this regard that a home construction loan is one of the loans that require interest-only payments during construction. As a matter of fact principal payment is done only upon completion. More often than not a house is considered complete when it receives its certificate of occupancy. On the other hand the interest rates in this loan are usually variable. In an ideal scenario the contractor and the lender establish a schedule based on the stages of the construction of the house, and interest is charged likewise. If experts are to be believed another point to be considered in home construction loans is how much of the project cost the lender is willing to lend. It is worthwhile remembering that the land that you own for the construction of the home can be considered as equity on the construction loan. There is no denying that with a home construction loan, you have the option of
opting for the construction-to-permanent financing program wherein the loan is converted into a mortgage loan once the certificate of occupancy is issued. By following this route, there is no need to make two loans; there is only one application with one closing. Fact remained that if this sounds feasible, it is best to rate lock from that lender. On the other side of the coin it is important to note that the home construction loan is not meant to be around for a long time. Theoretically speaking you take a loan until the completion of the home and make the necessary payments. According to experts when choosing the best home construction loan, it is best to compare the rates of the different financial institutions offering this loan. The general thumb rule in this regard is the lower the rate, the better deal is, but it is important to read the fine print and know the details of the different offers. In simple terms with a typical construction loan, the first payments are basically interest. It is worth mentioning in this regard that a common construction loan for a conventionally constructed home can be anywhere from 6 to 12 months long. Keeping that into perspective, consider how much will be saved in interest on the loan before it is converted to a conventional mortgage, if the construction time is cut from 6 months to 2 months. In other word on bigger projects, the savings will be even greater. you can save even more providing you carry the construction insurance modular homes. Due to the simple reason that the structure is not exposed to acts of nature during critical stages of framing and construction, insurance rates are much more reasonable as well. Other Articles |
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