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Home > Financial Services >
Construction Loans > Know More About Construction Loans
Know More About Construction Loans |
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Anybody who is interested in taking up
construction loans needs to understand a few basics attached to the whole loan taking process. Construction loans are also known as story loans these days. This means that the borrower is supposed to sell off a story of the planned building to avail the loan from a lender. Construction loans are also known as construction mortgages. There are very few market lenders who deal in construction loans, but they offer completely different terms on the loans, including different rates, fees, and other charges. There are times when you think of having that prefect, well equipped home to live in. Even studies have shown that more than a quarter of the Americans prefer building their homes rather than buying them. The types of construction loans available in the market depend on the kind of finance you are looking for your kind of building project. Construction loans are very different from the traditional mortgages. To know more about construction loans, you need to contact your credit union. It is important to note that these loans are short-term loans and are substituted by permanent loans once the construction of the home is finished. Construction loans are of two kinds: Construction-to-permanent loans and construction only loans. The construction-to-permanent loan is the type of loan where the lender is entitled to the interest on the loan from the borrower throughout the construction of a home. This loan gets converted into a mortgage by the lender, once the home gets built. The advantages of this loan are that it involves just one application and closing. There is just one set of costs involved in the different steps of the loan process like recording the mortgage, confirming the credit, and the title search on the property. The negative points from the point of view of the borrowers are, they do not get to shop around for the best deals in the market and they have to make do with the available deal. On the other hand, some borrowers feel good about making a commitment on the mortgage. Such construction loans do not have any upfront fees even if there is a fee it is very low. The deal that requires separate loans for construction and mortgage is a part of the construction-only loans. In such a case, the borrower applies for a construction loan and pays up a closing cost on that. The term of this loan is very short, ranging from six to twelve months. The interest is supposed to be paid only during the stage of construction by the borrower; the amount of the principal is given at the end of the loan-term. Such construction loans have some fees connected to them. There is an up-front fee that is to be paid. It ranges from 1-3% more than the prime rate. The next step is to take up another mortgage and pay the closing cost again. But the consumer has a choice to take the two loans from two different lenders, or even the same lender. This loan appeals to consumers on account of the flexibility it offers to them. The interest rate on these loans is comparatively lower. The best part about availing construction loans for your homes is that they are designed in a way to include both the cost of the land and the construction of the home. Factors about the land and construction are covered in construction loan deals. Another good thing about construction loans is that that they are timed for the different levels of construction and can be availed from lenders only when required in the stages of construction. This makes them stand apart from the traditional loans that were given out by lenders in one go and were blown up in the very first phase of construction by the borrowers. |
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