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.
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
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
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.
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