Are you stranded finding funds for your home? Don’t worry. There are many financing options to help you, like mortgage loan types. Some of these are efficient while you’re buying a house, but if you need to build one, a construction loan is a much better option for you.
A construction loan is an interim loan that finances a building’s construction cost, and it differs from a traditional home loan in various ways. Here’s a comparison:
Traditional Home Loans vs Construction Loans
A traditional home loan is a mortgage with a fixed rate on an existing home. The borrower makes payments throughout the life of the loan. You can apply for a traditional home loan through Veterans Administration and Federal Housing Administration programs.
A construction loan, on the other hand, lasts for a limited time depending on the terms during its underwriting. Wasatchpeaks.com noted that the stated time is often the estimated construction time. To access the funds, the builder submits a draw request to the lender.
Repaying a Construction Loan
Upon the completion of your home’s construction, you should acquire a mortgage. The mortgage will be a great help in paying off the construction loan. An advantage of taking a construction loan is that you have the liberty to choose your mortgage company. It doesn’t have to be the same company that issued you the construction loan.
Conforming and Non-conforming Loans
A conforming loan is a mortgage that goes for less than a specific amount, any other loan higher than that becomes a non-conforming loan by default. The qualification guidelines on these types of loans also differ. Conducting enough research before applying for one is critical and helps one make a more affirmed decision.
Lastly, the choice of your general contractor will determine the worthiness of a construction loan. A licensed contractor will manage the finances wisely, avoid cost overruns, and deliver your home in time with no issues regarding code and inspection later.