Often people dream to build their own house for such reasons
new construction loans have been provided. The new construction
loan is provided only after the lender has analyzed the use
and the outcome of the purpose for which the loan is being taken.
The only advantage associated with these loans is that they
come with interest-only payments till the project is completed,
once that the project is completed then the loan becomes due.
Completion of the project is considered when the house gets
a certificate of occupancy, which is different from the building
permit. The occupancy permit is give by the city in which the
house is being built.
The new construction loansis a short-term loan. Lenders usually opt to give these loans to projects that are large scale. However this does not mean that people who haven• t previously taken these loans would not qualify for these loans. But they should expect a higher interest rate on the loan. But if the lender is convinced with their construction ability he would offer a lower interest rate. If the new construction loan is taken for a house for which the land has already been bought then the rates on the new construction loan would be low.
Most of the experts advise that the best time to take the new construction loansis at the time of recession. This is because of the fact that at the time of recession the rates would be down and hence the new construction loan would be available at lower interest rates. Choosing the right king of new construction loan at the right time would have a lot of effect on the interest that you would have to pay on the loan. You should not take the new construction loanslightly and make sure that you analyze all the situations under which you can qualify for a lower interest rate on these loans.
Before you approach a lender for a new construction loan you should have the
plan of the project ready with you. More than this you should
be able to ready to meet the terms of the lender. Before the
lender can take any decision on the approval of the loan he
would need to know what is the loan being used for. It is advised
that before the person applies for the new construction loan
he should be careful in selecting the lender for the loan.
The new construction loan is based on several aspects
• The structures surrounding the area
• The background of the borrower
• The status of the economy etc
Once the borrower gets through the loan process and the completion of the construction then he can easily get the benefit from the constructed property. The new construction loansworks similar to any other loan. However with these loans only a portion of the loan is released. This money is released in stages as the work gets completed according to the budget. The manner in which the money is drawn is called as draw or as vouchers.
When the new construction loan is taken for a commercial property then the lender would look into the fact whether the property would give some income. Besides if the loan is taken for residential purpose then the income of the borrower is considered. The repayment towards the new construction loan is easy and falls into the budget of the borrower. However the lenders do not want the borrowers to use up all their reserves and hence they have created the interest only payments for the time the construction is still going on. The payments are also based on how much money has been drawn at the time the construction is complete and the amount becomes due.
The maximum amount that you can borrow with the help of a construction loan depends upon a number of factors like the type of property, the total cost, the stabilized value of the property at the time of completion, the equity that has been invested etc. The largest amount that can be taken with a new construction loan would depend on the lender. It is never the if the permanent loan exceeds the total cost of the project then the lender would give out 100% financing. Lenders usually opt for 10-20% of the total costs that are to be funded by the equity of the borrower.
Looking for a new construction loan is not an easy task. This is because of the fact that you would be borrowing money for a house or a building that does not exist. In order to look for the right type of new construction loan you are required to do a lot of shopping. Besides before you decide on the loan you should make sure about the loans terms and the qualification criteria. Make sure that the lender with whom you are dealing is authentic.
Once that you have found the right lender then it is advised that you go in for a pre approval process. This process is a short version of the approval of the loan before the loan approval so that you would know whether you would be approved of the loan or not. For the pre-approval the lender would ask you some questions about your credit score and your credit history. The lender would also ask you about the type of property that you wish to build. Make sure that you ask the lender about the interest rate and the terms that he would apply on your new construction loan. Any decision made on the loan should be taken carefully.