No More Groans, Now That We Have Construction Loans

The days of traditional mortgages are long gone. If you are planning to build your own house instead of buying one, chances are you will likely end up getting a construction loan.

What Exactly Are Construction Loans?

Construction loans are loans which offer short-term financial support to companies or individuals planning to build their own infrastructure, be it an office or home. Such loans are strictly monitored over and have high rates. When the loan is being sanctioned, a well-crafted plan is drawn up about the construction timetable and budget, this plan needs to be strictly followed by the person availing the loan. Whereas normal home loans are based on a home’s current market value and condition, construction loans are based on the projected value of the home, which it will have after the building or construction work is over.

There Are A Different Types Of Construction Loans Available. They Are As Follows:

1. Construction-to-permanent Loans: This type of loan basically enables you to lock the interest rates at closing, this helps with making steady payments. One should take up such loans if they have a concrete plan for construction and fixed timetable prepared. For such cases, the builder is paid by the bank while the work is being finished.

2. Construction-only Loans: If one has a large amount of money ready at hand, they should opt for such a loan. In these types of loans, the full borrowed amount and interest need to be paid back in one go once the construction is over. If a mortgage is needed to help with covering the cost, then the person needs to find a lender themselves and get approved for a second time. These loans may be useful for people who sell off their old house to make a new one and have a huge amount of money ready at hand.

3. Renovation Construction Loans: These loans are used when one wants to renovate their current house or they buy a house, which is in need of repair. Again, in this case, the projected value of the renovated house planned is added to the mortgage along with the price of purchase.

Advantages of Construction Loans:

1. The loans are interest-only while the construction is ongoing. The bank doesn’t ask you to pay the principal amount until the construction is entirely over. Thus, while the construction is going on, you are only expected to pay interest-only payments on the loan, which are lesser in amount, this thereby gives you time to save up more.

2. Since the loans come with a lot of scrutinies, they provide a certain sense of direction and path to the construction. The stringent checks and adherence to plans and timetables make sure that your construction is over within a stipulated time and not needlessly prolonged. Also, the project stays well within a certain budget.

3. The terms of the loan are flexible, which means that even though the banks require you to provide them a well-drawn plan for the entire construction project along with a timetable and budget, construction loans are much more easy-going as compared to a traditional loan, which is knee-deep in loan terms and guidelines. But, with construction loans, one can work with the terms according to the needs for their construction project.

Knowing the advantages of these loans, it’s naturally a smart choice to pick up any one. These loans help you to achieve building the house you want to without break too much sweat, they are something you can lean on to make sure that you are able to pay any expenses that come to your way during your construction project.