The Construction Loan Primer Guide |
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With the availability of construction loans in the building finance market, there are an equal number of doubts that the borrowers have about them. There are many things that borrowers should keep in mind before taking up construction loans. There are chances that you might take up the wrong construction loan that ruins all your funds and the dream of building your home. In order to stay clear of such a situation, you should take up a loan package that meets all your needs and requirements. Lenders of construction loans sometimes ask the borrowers to first qualify for another permanent loan. This is done to understand your financial standing and your ability to repay the loans. There are times when depending on the location of your home, you are offered construction-only loans. These loans should not be your first option as they are short term. They are good in case you are thinking of selling your home off, after its construction is complete. But in such a case you will have to look for a permanent mortgage somewhere else. These loans are more expensive as they carry extra closing costs. The construction-only types of construction loans are meant to be paid-off in full within one year. This is the criterion even if the construction of your home is not over. There are chances that lenders may offer you a combination of construction and construction-only loans. You can take your pick. The two types construction loans that you can pick from are standard construction loans and the construction-only loans. The construction-only loans can be rolled into one permanent mortgage once the construction of the home is complete. If the two kinds of construction loans are not treated as one package, then the borrower may have to pay extra closing costs. In case of standard construction loans, the loans are long-term, and the money is paid out in phases as the construction proceeds. Yet, different loan dealers have different policies and procedures to follow. The best thing is to judge about the kind of loan that you require is by the kind of offers and quotes that you get by different dealers. Try to rope in two different construction loan dealers in case you want a bigger loan. There are some risks that are involved in taking construction loans. The construction loan package that you avail includes, the construction loan and the permanent loan. There are many risks that are faced by the borrower in such a case. There are many things that can happen in the duration of home-construction. There can be many mishaps that may hamper your chances of requalifying for a loan you qualified for at closing. Being unable to requalify for the loan can lead to losing your new home. All the investments that you made on the home and the down payments for the loan can be lost in just one go. If the cost of construction is higher than what you expected, then you need to make the arrangement for extra money, or cash to maintain the loan-to-cost ratio. You need to make sure before you sign up for any of the construction loans about the provision of coming up with an amount as and when required. There are terms that you can agree on with your lenders in case you want to avoid such a situation. You can sign a fixed-price contract with the builder. But in such a case you will have to remember that the builder does not escape any costs, or compromises with the quality of construction. Yet, it is a good idea if you maintain a separate account for any future contingencies. In the terms of the construction loans you should also remember not to accept any extra costs that were not written down, or agreed on before. This will help you in saving on the loan and cash from your own pocket. |
