The FYIs of Construction Loans
Oct 19, 2016 Home Loan
Entering a new home is a dream come true for most of us. But that is barely possible without a Construction Loan. For those who don’t know; construction loan is a kind of loan that one gets in order to finance the construction of a new home or a commercial property.
New Home Construction Loan is acquired by the home owners to cover the cost of builder and building materials. If the borrower is also a land owner of the new construction, his chances of receiving loan increases.
Commercial Construction Loan is given by lenders to cover the cost of building commercial or industrial structures.
Short term and long term are the two types of terms for Construction Loans. The term period for short term loan is 6-12 months (the expected time taken for the completion of the house). On the other hand, the term period for Long term loans lasts for 15-20 years. Long term construction loans are preferred to the short term ones because of the flexibility of interest and variety of adjustable rate of the mortgage.
In order to receive a construction loan, the borrower needs to produce all the specific documents and details about the building that is undergoing construction. Precisely speaking, the borrower has to assure the lender that would be able to repay the loan along with the interest. The loans are set up in such a way that the borrower has to pay only the interest while the construction is going on. After the construction is complete, the loan is converted into either traditional loan, fixed loan or adjustable rate mortgage loan.
A permanent loan that has been converted into a mortgage loan is called Construction-to –permanent loan, one-time close loan or financing program. The advantage of this scheme is that you only need to complete one application and you only attend one closing, whereas, the disadvantage is the interest rate can change within the time taken to construct the house.
Lastly, it is advisable to have a proper understanding of the current interest rate trends while locking in your interest rate when you are converting construction loan into a permanent loan. If there is a possibility of construction delays you should also include an allowance in your loan agreement.
These were the major points that you should bear in mind when you are considering of taking construction loans.
New Home Construction Loan is acquired by the home owners to cover the cost of builder and building materials. If the borrower is also a land owner of the new construction, his chances of receiving loan increases.
Commercial Construction Loan is given by lenders to cover the cost of building commercial or industrial structures.
Short term and long term are the two types of terms for Construction Loans. The term period for short term loan is 6-12 months (the expected time taken for the completion of the house). On the other hand, the term period for Long term loans lasts for 15-20 years. Long term construction loans are preferred to the short term ones because of the flexibility of interest and variety of adjustable rate of the mortgage.
In order to receive a construction loan, the borrower needs to produce all the specific documents and details about the building that is undergoing construction. Precisely speaking, the borrower has to assure the lender that would be able to repay the loan along with the interest. The loans are set up in such a way that the borrower has to pay only the interest while the construction is going on. After the construction is complete, the loan is converted into either traditional loan, fixed loan or adjustable rate mortgage loan.
A permanent loan that has been converted into a mortgage loan is called Construction-to –permanent loan, one-time close loan or financing program. The advantage of this scheme is that you only need to complete one application and you only attend one closing, whereas, the disadvantage is the interest rate can change within the time taken to construct the house.
Lastly, it is advisable to have a proper understanding of the current interest rate trends while locking in your interest rate when you are converting construction loan into a permanent loan. If there is a possibility of construction delays you should also include an allowance in your loan agreement.
These were the major points that you should bear in mind when you are considering of taking construction loans.
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Vithal das patel
2016-11-17 14:56:29So good
