Having a home built is always an expensive undertaking. But one way to make it more affordable is to take out a construction loan. This short term loan is given to you in pieces, based on each stage of the construction process. Once you’ve been approved for it and start receiving the money, six months later you will have to start paying it back. Most construction loans give you a maximum of two years to pay them back in full.
Construction Loan Types
There are three types of construction loans; Construction-to-Permanent, Construction Only, and Renovation. Certain qualifications have to be met for each type of loan. Construction-to-Permanent loans are given when a plan and timeline have already been devised. As the house is built, the construction workers get paid accordingly. After this happens, the bank that extended the loan treats it as a mortgage they are closing on. Most people prefer this type of loan because once the mortgage is closed on, the interest rate is locked so it can’t increase over time.
In the case of a construction only loan, payment on the loan isn’t required until the construction process has been completed. However, at that time, the full amount of the loan must be paid back in a single transaction.
When it comes to a renovation construction loan, the amount you get is calculated according to how much the home should be worth when construction on it is complete. In most cases, this is the type of loan people take when they buy a house with the intention fixing it up, either to use it for their own purposes or sell it.
How You Benefit From A Construction Loan
There are some distinct advantages to getting a construction loan over other types. While traditional loans from a bank can be very limiting, you have more freedom with a construction loan. It is easier to customize it for the specific project you are trying to complete. Another benefit is that the loan will cover any construction workers or architects you choose to hire.
For more information on how to get and use a construction loan, please contact our offices today.