Construction Loans
Many people use two types of financing avenues to get the home of their dreams built. Through the use of construction loans and home mortgage loans, the building and financing of a home is possible. A construction loan is not considered for financing with the expectation that the loan will be around for 30 years.
A construction loan is definitely a short term loan that covers a period of time from 6 months to 1 year. A better timeline for the construction loan can be gotten from the builder who will be involved in all phases of the construction process, and they will be able to provide the bank with all of the necessary details that concern the construction phase of the homebuilding process.
These construction loans are generally financed by a banking lender, but with a specific purpose in mind. Items such as driveways may not be included in a construction loan. It will not be looked at in the same lending light as home loans that are presented as home mortgage loans. The use of Government financing for construction loans is not possible.
The length of time that a construction loan will be financed will cover the period of time necessary for the home to be finished and considered ready for occupancy. The repayment clock starts running directly after the certificate of occupancy is issued, not when the homeowner decides to move into their home.
The banking institution that finances a construction loan will require a detailed plan of all phases in the construction process. If the plan looks ill-conceived, or does not exhibit characteristics of being planned with great forethought, there is a good chance that the bank will turn down any idea of financing.
Homeowners can expect to be given a higher interest rate by their banking institution on their construction loan portion of their home financing needs. This rate is higher because rates are not regulated by Federal loan laws. Banking lenders will generally arrange for a variable interest rate for the construction loan, which is the standard route for all short term loans.
Funds can be withdrawn during the construction process to pay for the various phases of construction. The payments due during the life of the construction loan will cover interest only. The leftover amounts, can be refinanced at the end of the construction loan period and converted to the standard principle fixed interest rate that homes are normally financed for, with a payment plan negotiated for 15, 20 or 30 year mortgages.
by Melissa.Brown 19 years ago