Construction Loans

Overview

Construction loans are special types of loans in which the proceeds are used to pay for some type of construction. The terms will depend on the types of loans you go in for. In most construction loans, the repayment begins only after the project is completed. These loans tend to include terms to ensure that the project is completed. Even if the loan is intended for private citizens to build their own homes, it will be changed to a normal mortgage loan when the construction is complete and the property becomes the collateral.

How It Works

The simplest form of construction loan is a loan that you take to build your own home. If you want to construct a building for business use or for rental purposes, you can also go in for construction loans. The fundamental guideline that lenders follow when extending credit is to check if the borrower will be able to pay the loan back. The lender would be primarily looking at the expected income. No matter how valuable the property turns out to be once it is completed, no lender will loan more money than what the borrower can afford to repay. Even though the borrower will not have to make any payments during the construction period, they will have to start disbursing the payments once it is completed.

Benefits

The primary benefit of the construction loan is that it enables you to build your own house. Since you do not have to make the monthly payments till the construction is complete, you can completely focus on the construction.

Cost/Pricing

The primary cost of all types of construction loans, is the interest you pay, and this can vary depending on the terms of the mortgage. The terms, rate options and monthly payments differ from company to company. Compare loans offered by different financial institutions and ensure that you are clear on the terms and conditions of the loan. If you refinance your mortgage loans, you may get better terms and save a lot of money in the long run.

Timing

You should start investigating about construction loans as soon as you have decided to build your home. Even if you are unsure of the cost of construction, you can meet with a loan officer to get the necessary details.

Companies/Industries

Many companies and brokers offer construction loans, and they can help you determine if mortgage refinancing is right for you. There are many local banks, national banks and institutions that offer construction loans. Some of the leading companies in the field are Nationwide Construction Loans, Bank of America and Centerline Capital Group.