Short Term Construction Loans: Affordable for Homebuyers |
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Construction loans can be one of the finest ways for you to build your dream home. When you apply for construction loans, you need to sell the story of the planned building to the lender. You would pay interest to the lender during the construction phase of the project. And after the home is built, the lender automatically converts the loan to a mortgage. Construction loans are often called interim loans because they allow for interim or short term financing during the construction phase of building a home. Construction loans can be of two types, short-term or long-term. If you are building your own house or investing in major repairs or renovations for your home or business, you will probably be taking out a long-term loan such as a mortgage. On the other hand, you may take out a short-term construction loan if you are undertaking a major construction project such as a condominium conversion. You can apply for construction loans from banks, credit unions and other financial institutes. The loan amount varies based on your income and other factors. But if you qualify for such kind of a loan, the bank or the credit union would lend you up to 90% of the appraised value of your new home on completion. During construction period, you need to pay only on a monthly basis and the interest rate is calculated based on the amount advanced. However, there are some additional fees also. These fees include an application fee, inspection fee, and legal and recording fee. Furthermore, underwriting guidelines vary from one bank to another; typically you will be asked to provide a mortgage on the property and a cost estimate from a licensed contractor showing the anticipated costs of materials and labor. Most banks and financial institutes that offer construction loans would have an inspector visiting your site to ensure that the advances you are requesting do not exceed the value of the work and materials that have been completed. After the construction phase is completed, the construction loan is normally paid off and permanent financing is obtained for the property. When you take short-term construction loans you expect to back your construction and renovation costs fairly quickly when a third party or parties rent or buy your renovated properties. The initial cost of building or renovating would be very high. But you can exhibit reduced rates if you're going to be selling the units in a condominium complex. So, by taking out a short-term construction loan, you can get the advantages at a lower interest rate. A traditional commercial loan may be right for you if you want to take out construction loans for your small business but you're not sure how long it will take to pay it back. The standard option is to get a fixed rate loan for any term you want, from five to thirty years, though in some cases an adjustable rate loan might be more suitable. A balloon loan scares people in many contexts, but if you are fairly certain that you will be able to pay back the loan in five to seven years, then you can get a good deal. Getting construction loans are easy, the second or third time around. Trying to obtain one for the first time, however, can prove difficult, especially for larger untested projects. Banks and other lenders prefer an individual who has a proven track record. For that reason, if you have already completed one or two projects, you are more likely to get positive response from lenders. In fact, it's a kind of added advantage for you. But it doesn't mean that you can't get finance if you have failed to provide past projects. You can still get financing even if you are considered a greater credit risk, but you would probably be asked to pay a higher interest rate. Therefore, it's better to be equipped with armful of knowledge when you apply for construction loans. Moreover, try to know the terms and conditions of your lending agencies. |
