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Sifting between Construction Loans and Convertible Permanent Loan Offers |
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Did you hear about construction loans before? Did you see advertisements of construction loans in the daily newspaper? If no, why don't you try to know about these loans that are helpful in fulfilling many of your dreams, building that spectacular mansion or that department store. Let us take an example from my personal life. Even I didn't know about the construction loans earlier. I came to know about them only two years back when a construction company built our home in Alabama. My father told me that our construction company took out a construction loan to cover the expenses of building our home. He also told me that during the construction of the home, the company was responsible for making payments on the loan. But the company paid the loan off when they received money for the purchase of the home. Although construction loans can be obtained from banks and other financial institutes that have specialized construction loans branches, these loans are not very easy to handle. It's mainly because of the loan brokers who come in front of you for the sake of assistance. Today, there are several brokers who offer online assistance for you. But all them are not reliable. They promise tall claims but in most of the time miserably fail. There are even some brokers who seem to be concerned only with your money. That's why you need to be very careful while applying for a construction loan. Construction loans are usually variable-rate loans. These loans are priced at a spread to the prime rate or some other short-term interest rate. Based on the stages of construction you, the contractor and the lender establish a draw schedule, and interest is charged on the amount of money disbursed to date. Construction loans require interest-only payments during construction and become due on completion. If you have your own land to build your dream mansion, then construction loans can be very easily accessed. It's because construction lenders feel comfortable to offer the loans to a person who has the base where the construction would occur. In fact, if you already own the land, it can be considered equity on the construction loan. But if you don't have your own land, don't be disheartened. Interim financing may be useful in buying the land and then getting the desired construction financing. When you try to determine the amount of construction loans, every aspect of the construction process should come into consideration. You will need to cover the costs of materials used in the building from the foundation of the building to the rooftop. You will need to cover the cost of labor to construct the building. Take a note of the various fees that you need to pay to the inspectors, appraisers and so on. Don't forget about the fee for the building permit. Also remember about the taxes that you are responsible to pay. In addition to the contract price, it is common for a construction loans lender to build a contingency reserve into the loan. This is a specified percentage or dollar amount usually required by the lender in case of unforeseen circumstances that could negatively impact the construction of your home. The amount required is usually based on a percentage of the contract price, on-site costs or loan amount. Additional costs will vary, and may include construction loans closing costs and fees and special insurance requirements. But don't worry; you can take the advantage of a construction-to-permanent loan. The plus point of this type of loan is that there is only one loan application and one loan closing. But remember, getting approved for a construction loan can be tricky. And if you are able to overcome the tricks and catch a quality construction-to-permanent loan, then you would observe tremendous benefits. Because a quality construction-to-permanent loan includes on-site costs, off-site costs, closing costs, interest reserve, contingency reserve and lot purchase or value. |
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