Looking for Home Financing? A Comparison Between Traditional & Construction Loans

Looking for Home Financing? A Comparison Between Traditional & Construction Loans

Construction loaningAre 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.